UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1997
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to .
------- -------
Commission File Number 0-18048
------------------
SA Telecommunications, Inc.
----------------------------------------
(Exact name of small business issuer
as specified in its charter)
Delaware 75-2258519
- --------------------------------- -------------------
State or other jurisdiction IRS Employer
of incorporation or organization) Identification Number
1600 Promenade Center, 15th Floor,
Richardson, Texas 75080
- -----------------------------------------------------------------
(Address of principal executive offices)
(972) 690-5888
- -----------------------------------------------------------------
(Issuer's telephone number)
N/A
- -----------------------------------------------------------------
Former name, former address and former fiscal year,
if changed since last report)
Check whether the issuer (1) filed all reports required to be filed
by Section 13 or 15(d) of the Exchange Act during the past 12
months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
----- -----
There were 15,668,885 shares of the registrant's common stock
outstanding as of August 13, 1997.
Transitional Small Business Disclosure Format (Check One:)
Yes No X
----- -----
<PAGE>
SA TELECOMMUNICATIONS, INC. AND SUBSIDIARIES
INDEX
Part I. Financial Information Page
--------
Item 1 - Financial Statements
Consolidated Balance Sheets 1-2
Consolidated Statements of Operations 3
Consolidated Statements of Shareholders'
Equity (Deficit) 4
Consolidated Statements of Cash Flows 5
Notes to Consolidated Financial Statements 6-9
Item 2. - Management's Discussion and Analysis
or Plan of Operation 10-20
Part II. Other Information
Item 1. - Legal Proceedings 20
Item 2. - Changes in Securities 21
Item 4. - Submission of Matters to a Vote
of Security Holders 22
Item 6. - Exhibits and Reports on Form 8-K 22
<PAGE>
Part I. Financial Information
Item 1. Financial Statements
SA TELECOMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
ASSETS
------
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
-------------- -------------
<S> <C> <C>
Current assets
Cash and cash equivalents $ - $ 14,360,466
Accounts and notes receivable:
Trade, net of allowance for doubtful accounts
of $3,068,826 and $2,796,946, respectively 5,239,091 7,035,710
Other, net of allowance for doubtful
accounts of $0 and $31,479, respectively 536,646 1,481,072
Inventory 136,875 136,875
Prepaid expenses and other 559,495 594,081
------------- -------------
Total current assets 6,472,107 23,608,204
-------------- -------------
Property and equipment 12,759,174 10,054,937
Less accumulated depreciation and amortization (2,133,295) (1,380,307)
------------- -------------
Net property and equipment 10,625,879 8,674,630
-------------- -------------
Excess of cost over net assets acquired, net of accumulated amortization
of $3,759,603 and $2,591,529, respectively 26,121,727 27,902,634
------------- -------------
Other assets
Debt issuance cost, net 2,170,086 2,083,843
Other 348,794 409,758
------------- --------------
Total other assets 2,518,880 2,493,601
------------- -------------
Total assets $ 45,738,593 $ 62,679,069
============= =============
- Continued -
The accompanying notes are an integral part
of these consolidated financial statements.
</TABLE>
-1-
<PAGE>
SA TELECOMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS - Continued
(Unaudited)
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
------------ ------------
<S> <C> <C>
Current liabilities
Cash overdraft $ 209,512 $ -
Accounts payable 1,002,153 2,023,955
Accrued telecommunications expenses 6,121,642 11,360,002
Other accrued expenses 2,307,526 2,382,504
Acquisition obligation 791,702 9,500,000
Revolving line of credit 3,979,505 -
Short-term notes payable - 782,239
Current maturities of long-term obligations 921,545 570,859
------------ ------------
Total current liabilities 15,333,585 26,619,559
------------ ------------
Long-term obligations, less current maturities 32,938,808 28,477,903
------------ ------------
Commitments and contingencies
Series A redeemable preferred stock, $.00001 par value,
250,000 shares authorized; 180,000 shares issued 1,370,725 1,330,303
------------ ------------
Shareholders' equity (deficit):
Common stock, $.0001 par value, 50,000,000 shares
authorized; 16,866,353 and 16,858,053 issued, respectively 1,687 1,686
Additional paid-in capital 26,407,406 26,402,671
Retained deficit (26,459,603) (16,299,038)
Treasury stock (1,197,518 shares) at cost (3,854,015) (3,854,015)
------------ ------------
Total shareholders' equity (deficit) (3,904,525) 6,251,304
------------- ------------
Total liabilities and shareholders' equity $ 45,738,593 $ 62,679,069
============ ============
The accompanying notes are an integral part
of these consolidated financial statements.
</TABLE>
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<PAGE>
SA TELECOMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
For the three months For the six months
ended June 30, ended June 30,
--------------------------- ---------------------------
1997 1996 1997 1996
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Telecommunications revenues:
Retail $ 9,327,083 $ 7,184,746 $ 18,706,741 $ 14,117,696
Wholesale 2,066,669 25,808 5,802,282 120,249
------------ ------------ ------------ ------------
Total telecommunications revenues 11,393,752 7,210,554 24,509,023 14,237,945
Cost of revenues:
Retail 8,797,626 3,923,747 15,249,686 8,193,507
Wholesale 2,177,374 20,698 5,753,062 96,251
------------ ------------ ------------ ------------
Total cost of revenues 10,975,000 3,944,445 21,002,748 8,289,758
------------ ------------ ------------ ------------
Gross profit 418,752 3,266,109 3,506,275 5,948,187
------------- ------------ ------------ ------------
Operating expenses:
General and administrative 4,433,508 2,450,747 7,783,448 4,698,847
Depreciation and amortization 1,163,548 411,872 2,366,345 947,816
Nonrecurring integration costs 736,025 - 1,833,805 -
------------ ------------ ------------ ------------
Total operating expenses 6,333,081 2,862,619 11,983,598 5,646,663
------------ ------------ ------------ ------------
Income (loss) from operations before other income (expense)
and extraordinary item (5,914,329) 403,490 (8,477,323) 301,524
Other income (expense):
Interest expense (920,528) (348,593) (1,710,310) (693,860)
Other, net 107,290 32,487 127,490 47,590
------------ ------------ ------------ ------------
Total other income (expense) (813,238) (316,106) (1,582,820) (646,270)
------------ ------------ ------------ ------------
Income (loss) before extraordinary item (6,727,567) 87,384 (10,060,143) (344,746)
------------ ------------ ------------ ------------
Extraordinary item - gain on extinguishment of debt - 2,149,191 - 2,149,191
------------ ------------ ------------ ------------
Net income (loss) (6,727,567) 2,236,575 (10,060,143) 1,804,445
Preferred dividend requirements, including accretion (50,211) (72,713) (100,422) (147,922)
------------ ------------ ------------ ------------
Net income (loss) applicable to common shareholders $ (6,777,778) $ 2,163,862 $(10,160,565) $ 1,656,523
============ ============ ============ ============
Income (loss) per common share and common share equivalent:
Continuing operations $ (0.43) $ 0.01 $ (0.64) $ (0.02)
Extraordinary item - 0.11 - 0.12
------------ ------------ ------------ ------------
Net income (loss) per share $ (0.43) $ 0.12 $ (0.64) $ 0.10
============ ============ ============ ============
Net income (loss) per share applicable to common
shareholders $ (0.43) $ 0.12 $ (0.65) $ 0.10
============ ============ ============ ============
Weighted average number of common share & common share
equivalent outstanding 15,668,835 18,556,471 15,667,322 17,285,266
============ ============ ============ ============
Income (loss) per common share - assuming full dilution:
Continuing operations $ 0.01 $ (0.02)
Extraordinary item 0.10 0.11
------------ ------------
Net income per share $ 0.11 $ 0.09
============ ============
Net income per share applicable to common shareholders $ 0.11 $ 0.09
============ ============
Weighted average number of common shares outstanding -
assuming full dilution 20,493,575 19,022,802
============ ============
The accompanying notes are an integral part
of these consolidated financial statements.
</TABLE>
-3-
<PAGE>
SA TELECOMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
(Unaudited)
<TABLE>
<CAPTION>
Series B Additional
Preferred Stock Common Stock paid-in Retained Treasury
Shares Amount Shares Amount capital deficit Stock Total
------- --------- ---------- ------- ----------- ------------ ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balances at December 31, 1995 125,000 $ 575,280 13,462,120 $ 1,346 $20,855,099 $(11,996,179) $ (456,601) $8,978,945
Private placements of common stock - - 251,700 25 369,975 - - 370,000
Issuance of common stock for:
Exercise of options - - 347,836 35 137,004 - - 137,039
Exercise of warrants - - 1,090,000 109 1,362,391 - - 1,362,500
Conversion of debt - - 267,856 27 449,973 - - 450,000
Other - - 236,612 24 376,875 - - 376,899
Issuance of common stock for
acquisition of USC securities (125,000) (575,280) 843,023 84 1,613,230 - - 1,038,034
Issuance of warrants - - - - 368,927 - - 368,927
Preferred dividend requirements,
including accretion - - - - - (147,922) - (147,922)
Net income for the period - - - - - 1,804,445 - 1,804,445
-------- --------- ---------- ------- ---------- ------------ -------- -----------
Balances at June 30, 1996 - $ - 16,499,147 $ 1,650 $25,533,474 $(10,339,656) $ (456,601) $14,738,867
======== ========= ========== ======= =========== ============ ========== ===========
Balances at December 31, 1996 - $ - 16,858,053 $ 1,686 $26,402,671 (16,299,038) $(3,854,015) $ 6,251,304
Issuance of common stock for
exercise of options - - 8,300 1 4,375 - - 4,376
Preferred dividend requirements,
including accretion - - - - - (100,422) - (100,422)
Net loss for the period - - - - - (10,060,143) - (10,060,143)
-------- --------- ---------- ------- ----------- ------------ ----------- -----------
Balances at June 30, 1997 - $ - 16,866,353 $ 1,687 $26,407,406 $(26,459,603) $(3,854,015) $(3,904,525)
======== ========= ========== ======= =========== ============ =========== ===========
The accompanying notes are an integral part
of these consolidated financial statements.
</TABLE>
-4-
<PAGE>
SA TELECOMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
For the six months
ended June 30,
---------------------------
1997 1996
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $(10,060,143) $ 1,804,445
Adjustments to reconcile net income (loss) to net cash
used in operating activities:
Extraordinary item - gain on early extinguishment of debt - (2,149,191)
Depreciation and amortization 2,366,345 947,816
Provision for losses on accounts receivable 1,351,718 400,063
(Increase) decrease in:
Accounts and notes receivable 1,389,327 (1,043,584)
Prepaid expenses and other (56,145) (116,138)
Other assets (23,002) (590,321)
Increase (decrease) in
Accounts payable and accrued expenses (6,185,629) 403,995
------------ ------------
Net cash used in operating activities (11,217,529) (342,915)
------------ ------------
Cash flows from investing activities:
Additions to property and equipment (897,239) (1,534,857)
Additional cost of FCLD purchase (1,061) -
Additional cost of Addtel purchase (94,403) -
Acquisition obligation - Addtel (8,000,000) -
Sale of assets 71,583 -
------------ ------------
Net cash used in investing activities (8,921,120) (1,534,857)
------------ ------------
Cash flows from financing activities:
Borrowings 3,230,000 2,000,000
Revolving line of credit 3,979,505 -
Proceeds from exercise of warrants - 1,359,149
Proceeds from exercise of options 4,736 200,380
Principal payments on long-term obligations (1,231,341) (549,391)
Debt issuance cost (204,717) -
------------ ------------
Net cash provided by financing activities 5,778,183 3,010,138
------------ ------------
Increase (decrease) in cash and equivalents (14,360,466) 1,132,366
Cash at beginning of period 14,360,466 823,738
------------ ------------
Cash and equivalents at end of period $ - $ 1,956,104
============ ============
The accompanying notes are an integral part
of these consolidated financial statements.
</TABLE>
-5-
<PAGE>
SA TELECOMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The interim consolidated financial statements are those of
SA Telecommunications, Inc. and subsidiaries (the
"Company"). These interim consolidated financial statements
are prepared pursuant to the requirements for reporting on
Form 10-QSB. The December 31, 1996 consolidated balance
sheet data was derived from audited consolidated financial
statements but does not include all disclosures required by
generally accepted accounting principles. The interim
consolidated financial statements and notes thereto should
be read in conjunction with the consolidated financial
statements and notes included in the Company's latest annual
report on Form 10-KSB/A. In the opinion of management, the
interim consolidated financial statements reflect all
adjustments (consisting only of a normal recurring nature)
necessary for a fair presentation of the consolidated
financial position and consolidated results of operations
for interim periods. The current period consolidated
results of operations are not necessarily indicative of
results which ultimately will be reported for the full
fiscal year ending December 31, 1997.
All significant intercompany accounts and transactions have
been eliminated. Certain prior period amounts have been
reclassified for comparative purposes.
NOTE B - REVOLVING LINE OF CREDIT
On January 9, 1997, the Company completed a line of credit
arrangement with Greyrock Business Credit ("Greyrock"), a
division of NationsCredit Commercial Corporation. The line
of credit has a maximum availability of $10 million, with
borrowings based on 80% of eligible accounts receivable and
inventory other than receivables arising from
telecommunications services rendered to customers by a
regional Bell operating company, a Bell operating company, a
local exchange company, a credit card company, or a provider
of local telephone services. The borrowings bear interest
at a floating rate of 2.5% above the reference rate of Bank
of America NT & SA, with a minimum interest rate of 9% per
annum and a minimum interest amount of $10,000 per month.
The borrowings are secured by all the assets of the Company
and its subsidiaries and the stock of the Company's
subsidiaries. The line of credit matures December 31, 1997
and automatically renews for successive additional one year
terms unless either party elects to terminate by giving
written notice to the other not less than 60 days prior to
the next maturity date.
The agreements regarding the line of credit contain
covenants which, among other matters, limit the ability of
the Company and its subsidiaries to take the following
actions without the consent of Greyrock: (1) merge,
consolidate and acquire or sell assets, (2) incur
indebtedness outside the ordinary course of business which
would have a material adverse effect on the Company and its
subsidiaries taken as a whole or on the prospect of
repayment of the obligations under the line of credit, (3)
pay dividends other than stock dividends and certain
dividends with respect to the Company's Series A Cumulative
Convertible Preferred Stock ("Series A Preferred Stock"),
and (4) redeem, purchase or acquire its capital stock.
Outstanding borrowings under the revolving line of credit at
June 30, 1997 were $3,979,505.
-6-
<PAGE>
SA TELECOMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Unaudited)
NOTE C - STOCK OPTIONS
On April 8, 1997, the Board of Directors granted options
under the 1994 Employee Stock Option Plan to purchase up to
275,000 shares of the Company's Common Stock to employees at
a price of $1.53 per share (market value of the Common Stock
on the date of grant) and 150,000 shares of Common Stock at
a price of $1.69 (110% of market value of the Common Stock on
date of grant). After a six-month waiting period, the shares
acquired upon exercise may not be sold earlier than periods
varying from eighteen to thirty months.
On May 30, 1997, pursuant to the terms of the 1994 Non-
Employee Directors Plan, options were automatically granted
to purchase up to 110,000 shares of the Company's Common
Stock to non-employee directors at a price of $.81 per share
(market value on the date of grant). After a six-month
waiting period, the shares acquired upon exercise may not be
sold earlier than eighteen months.
NOTE D - LONG TERM OBLIGATIONS
On March 25, 1997, the Company completed a private placement
of a $3,800,000 10% Convertible Debenture due 2006 (the
"March Debenture") for a net of $3,230,000 on terms
substantially identical to the terms of the Company's 10%
Convertible Notes due 2006 (the "Notes").
NOTE E - NONRECURRING CHARGES
The Company incurred an aggregate of $1,833,805 in
nonrecurring integration charges in the first six months of
1997 comprised of two components. The first component is
$450,578 principally in employee associated costs and
settlements on discontinuance of the Company's international
call back product line. For the six months ended June 30,
1997, revenues and cost of revenues attributable to the
Company's discontinued international product line were
$891,285 and $814,026, respectively. While such amounts are
also nonrecurring, they have not been separately identified
as nonrecurring in the statement of operations. The second
component is $1,383,227 principally comprised of costs
associated with excess and duplicate personnel reductions
to be eliminated in the integration of the Addtel acquisition.
NOTE F - EARNINGS (LOSS) PER SHARE
For the three months and the six months ended June 30, 1996,
earnings per share were calculated based upon the weighted
average number of shares outstanding during the period plus
the dilutive effect of stock options, stock warrants,
convertible debentures and Series A Preferred Stock using
the Modified Treasury Stock method.
-7-
<PAGE>
SA TELECOMMUNICATIONS, INC. AND SUBSIDIARIES NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Unaudited)
<TABLE>
<CAPTION>
For the Three Months For the Six Months
Ended June 30, Ended June 30,
1996 1996
-------------------- ------------------
<S> <C> <C>
Primary:
Average Shares Outstanding 15,689,431 15,397,430
Stock Options 3,540,249 3,242,197
Stock Warrants 2,572,606 1,799,097
---------- ----------
Total 21,802,286 20,438,724
Less: Shares purchased under
the Treasury Stock Method (3,245,815) (3,153,457)
---------- ----------
18,556,471 17,285,267
========== ==========
Full Dilution:
Average Shares Outstanding 15,689,431 15,459,243
Stock Options 3,540,249 3,242,197
Stock Warrants 2,572,606 1,799,097
Convertible Debentures 603,768 342,386
Series A - Preferred Stock 1,333,336 1,333,336
---------- ----------
Total 23,739,390 22,176,259
Less: Shares purchased under
the Treasury Stock Method (3,245,815) (3,153,457)
---------- ----------
20,493,575 19,022,802
========== ==========
</TABLE>
NOTE G - SUBSEQUENT EVENTS
On July 29, 1997, the Company began the implementation of a
restructuring plan to more closely align the Company's expense
levels with revenues. The restructuring plan involved all
areas of the Company and included a reduction in force and
reconfiguration of the Company's network coupled with the
closing of substantially all of the Company's outlying sales
offices in leased office locations. Specifically, the Company
terminated approximately 17% of the employees across a broad
spectrum of job classifications.
On August 13, 1997, the Company completed a private
placement of a $5,000,000 10% Convertible Debenture due 2006
(the "August Debenture") for a net of $3,300,000 and amended
the March Debenture by the attachment of an allonge (the
"Amended March Debenture"). The terms of the August
Debenture and the Amended March Debenture (the "Debentures")
are substantially identical to the Notes. The initial
conversion price of the Debentures is $1.50 per share, in each
case, as subject to adjustment and such the conversion price
under the Debentures is subject to adjustment upon issuances
of Common Stock or derivative securities convertible,
exchangeable or exercisable into Common Stock to certain persons
at prices below the initial conversion price of the Debentures.
On August 15, 1997, an indirect subsidiary of the Company
conducting international call back business in Ecuador
completed a sale of substantially all of the assets of such
business to Globalcommunications, S.A. ("Globalcom"). The
purchase price for the assets was a formula consisting on an
aggregate amount equal to the sum of each Monthly Revenue
Percentage Amount (as defined) for the forty-two calendar
months following the closing date, but in no event
-8-
<PAGE>
SA TELECOMMUNICATIONS, INC. AND SUBSIDIARIES NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Unaudited)
greater than $900,000.
-9-
<PAGE>
SAFE HARBOR FOR FORWARD-LOOKING STATEMENTS UNDER SECURITIES
LITIGATION REFORM ACT OF 1995
This report contains forward looking statements regarding the
Company's business and future financial condition and results of
operations that involve risks and uncertainties. Such statements
are based on an assessment of a variety of factors, contingencies
and uncertainties deemed relevant to management, including the
Company's current negative cash flow position, the Company's
historical operating losses, the need for integration of the
Company's acquisitions, the Company's liquidity position, the
regulatory environment, and other risks indicated in this and the
other filings with the Securities and Exchange Commission. Words
or phrases such as "will continue", "anticipate", "expect",
"believe", "intend", "estimate", "project", "plan" or similar
expressions are intended to identify forward-looking statements.
Should one or more of these risks or uncertainties materialize,
or should underlying assumptions prove incorrect, the Company's
actual results may vary significantly from those indicated.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION OR PLAN OF OPERATION
The following is a discussion of the consolidated financial
conditions and results of operations of the Company for the three
month and six month periods ended June 30, 1997 and 1996. It
should be read in conjunction with the Company's latest annual
report on Form 10-KSB/A.
General
- -------
SA Telecommunications, Inc. is a publicly held holding company
which, through its operating subsidiaries, is a full-service
regional interexchange carrier providing a wide range of domestic
telecommunications services through its network of owned and
leased transmission and switching facilities. As used herein,
the term the "Company" refers to SA Telecommunications, Inc. and
its subsidiaries, unless the context otherwise requires.
The Company primarily serves small and medium sized commercial
accounts in the west, southwest and south central United States.
A vast majority of the Company's commercial and residential
customers are located in suburban, secondary and rural markets.
In addition to providing "1+" domestic long distance services,
the Company also offers international long distance, wholesale
long distance, operator and wireless services, and other products
such as voice and data private lines, "800/888" services,
Internet access and travel cards. The Company is also authorized
to resell local telephone service in Texas and California.
The Company entered the telecommunications business in 1991
through the acquisition of North American Telecommunications
Corporation ("NATC"), a telecommunications provider offering
international call back long distance service to foreign
customers. In 1994 and 1995, the Company acquired two Texas-
based switchless resellers, Long Distance Network, Inc. ("LDN")
of Dallas, Texas and U.S. Communications, Inc. ("USC") of
Levelland, Texas. During 1996, the Company purchased
substantially all of the assets of First Choice Long Distance,
Inc. ("FCLD"), a switched reseller of long distance telephone
services located in Amarillo, Texas. In addition, effective in
1996, the Company acquired the assets of Economy Communications,
Inc. ("Economy"), a switchless reseller of long distance
telephone services located in McKinney, Texas, acquired Uniquest
Communications, Inc. ("Uniquest"), a company engaged in third
party customer verification services and outbound telemarketing,
and purchased all of the stock of AddTel Communications, Inc.
("Addtel"), a switchless reseller of long distance services based
in Glendale, California. The growth of the Company's customer
base has been largely the result of these acquisitions.
Also, during 1995 and 1996, the Company purchased and installed
switches in Dallas, Texas and Phoenix, Arizona and added leased
transmission facilities between these switches and the operator
switch acquired in the USC acquisition. The Company expanded its
network through the acquisition of switching equipment in
Amarillo and Lubbock in connection with the FCLD acquisition.
During the second quarter of 1997, the Company upgraded and moved
the Amarillo switch to Los Angeles, California, and during the
third quarter the Company currently plans to make the switch
operational and add leased
-10-
<PAGE>
transmission facilities between this switch and its other
switches.
The Company markets its services in areas in the west, southwest
and south central United States served by its network primarily
under the "USC," "USI," "First Choice Long Distance," "Southwest
Long Distance Network," and "Addtel" trade names. The Company
currently anticipates future growth will primarily result from
sales and marketing efforts of its direct sales force,
telemarketing, agent sales and mass marketing sales.
Results of Operations
- ---------------------
The following table sets forth certain items in the Company's
Consolidated Statements of Operations as a percentage of its
operating revenues for the three and six month periods ended June
30, 1997 and 1996.
<TABLE>
<CAPTION>
For the three For the six
months ended months ended
June 30, June 30,
--------------- ---------------
1997 1996 1997 1996
----- ----- ----- -----
<S> <C> <C> <C> <C>
Revenue 100% 100% 100% 100%
Cost of revenue 96 55 86 58
----- ----- ----- -----
Gross profit 4 45 14 42
Operating expenses:
General and administrative 39 34 32 33
Depreciation and amortization 10 6 10 7
Nonrecurring integration costs 7 - 7 -
----- ----- ----- -----
Income (loss) from continuing operations (52) 5 (35) 2
Other income (expense) (7) (4) (6) (4)
Extraordinary gain on extinguishment of debt - 30 - 15
----- ----- ----- -----
Net income (loss) (59)% 31% (41)% 13%
===== ===== ===== =====
</TABLE>
-11-
<PAGE>
THREE MONTHS ENDED JUNE 30, 1997 VERSUS THREE MONTHS ENDED JUNE
30, 1996
Revenues increased by $4,183,198, or 58%, from $7,210,554 for the
three months ended June 30, 1996 to $11,393,752 for the three
months ended June 30, 1997. Revenue minutes increased
approximately 32,000,000 or 97% from approximately 33,000,000
during the three months ended June 30, 1996 to approximately
65,000,000 for the same three month period in 1997. The Addtel
acquisition contributed $3,055,098 in retail revenue and
$2,032,008 in wholesale revenue, and the FCLD acquisition
contributed $449,551 in retail revenue. The Company's marketing
strategy continues to be the aggressive marketing of its "1+"
services, which have a higher gross profit margin, and the de-
emphasizing of operator services and wholesale business which are
less profitable product lines.
Gross profit on retail revenues decreased by $2,731,542 from
$3,260,999 for the three months ended June 30, 1996 to $529,457
for the same quarter in 1997. The gross profit margin on these
revenues decreased by 39% from 45% for the three months ended
June 30, 1996 to 6% for the three months ended June 30, 1997.
This decrease was primarily attributable to approximately
$2,145,000 of network inefficiencies and approximately
$1,700,000 due to the revaluation and adjustment of certain
transmission and access charges which the Company previously
believed were overbilled by their long line transmission carriers
and several local exchange carriers. Such network inefficiencies
include, without limitation, routing problems, improved leased
cost and elimination of excess capacity.
Gross profit on wholesale revenue decreased by $115,815 from
$5,110 for the three months ended June 30, 1996 to a negative
$110,705 for the same quarter in 1997. The gross profit margin
on these wholesale revenues decreased by 25% from 20% for the
three months ended June 30, 1996 to a negative 5% for the three
months ended June 30, 1997 due to the lower margins associated
with the Addtel wholesale business and approximately $175,000
of credits granted to one wholesale customer during the second
quarter of 1997.
The Company began phasing out the wholesale business obtained in
the Addtel acquisition during the second quarter and expects the
process to be completed during the third quarter of 1997. The
wholesale business is substantially less profitable than the
retail business and bears a higher credit risk. Addtel
wholesale revenues for the quarter ended June 30, 1997 were
$2,032,008.
Gross profit on total revenues decreased by $2,847,357 from
$3,266,109 for the three months ended June 30, 1996 to $418,752
for the same quarter in 1997. The overall gross profit margin
decreased by 41% from 45% for the three months ended June 30,
1996 to 4% for the three months ended June 30, 1997. The
overall decline in gross profit margin is due to the lower margin
wholesale revenue acquired in the Addtel acquisition, network
inefficiencies, and the reevaluation and adjustment of certain
transmission and access charges which the Company previously
believed were overbilled by their long line transmission carriers
and several local exchange carriers.
General and administrative expense increased by $1,982,761 from
$2,450,747 for the three months ended June 30, 1996 to $4,433,508
for the same quarter in 1997, and as a percentage of revenue,
increased from 34% in 1996 to 39% in 1997. The increase in total
general and administrative expense is primarily attributable to
the Addtel acquisition. The full impact of general and
administrative expense reductions from the continuing integration
of Addtel will not be realized until this process is completed,
which is currently expected to occur during the fourth quarter.
The increase as a percentage of revenues is primarily
attributable to bad debts of approximately $409,000
predominately related to one retail customer.
Depreciation and amortization expense increased by $751,676 from
$411,872 for the three months ended June 30, 1996 to $1,163,548
for the same quarter in 1997, and, as a percentage of revenues,
increased from 6% in 1996 to 10% in 1997. This increase resulted
from higher depreciation and amortization charges arising from
the acquisitions of Addtel and FCLD, increased depreciation from
the acquisition of switching and other network equipment, and
amortization of debt issuance cost related to the Notes issued in
August 1996.
EBITDA (loss) decreased by $4,845,092 from $815,362 for the three
months ended June 30,1996 to a negative
-12-
<PAGE>
$4,029,730 for the same quarter in 1997. EBITDA (loss) was
negatively impacted by lower gross profit margins and by the
increase in general and administrative expenses.
During the three months ended June 30, 1997, the Company incurred
a $736,025 nonrecurring integration charge to operations
comprised of (i) $252,978 for discontinuing the Company's
international call back product line and (ii) $483,047 for
integration of the Addtel acquisition from 1996.
The $252,978 charge for discontinuing the Company's international
call back product line is principally comprised of employee
associated costs and bad debts. The $483,047 charge for
integration of the Addtel acquisition is principally comprised of
costs associated with excess and duplicate personnel reductions.
The integration of Addtel is currently expected to be completed
during the fourth quarter.
The Company had income from operations of $403,490 for the three
months ended June 30, 1996 compared to a loss of $5,914,329 for
the same quarter in 1997. This decrease was primarily
attributable to lower gross profit margins, increased general and
administrative and depreciation and amortization expenses, and
nonrecurring charges.
The Company had net other expense of $316,106 for the three
months ended June 30, 1996 compared to net other expense of
$813,238 for the same quarter in 1997. This increase was
primarily due to an increase in interest expense from $348,593 to
$920,528 related to the offering of the Company's 10% Convertible
Notes due 2006 in August 1996 (the "Notes") and the Company's 10%
Convertible Debenture due 2006 issued in March 1997 (the "March
Debenture").
The Company recognized a gain on extinguishment of debt of
$2,149,191 for the three months ended June 30, 1996. This gain
relates to the Company's redemption of securities issued in
connection with the USC acquisition for an aggregate of 843,023
shares of the Company's Common Stock and $308,500 of cash. These
securities redeemed included (i) notes having an aggregate
principal amount of $3,150,000 and bearing interest at 11% per
annum, (ii) an aggregate of 125,000 shares of Series B Cumulative
Convertible Preferred Stock and (iii) a warrant which was
exercisable into an aggregate of 1,050,000 shares of the
Company's Common Stock at any time prior to July 31, 2000 at a
per share exercise price of $1.25.
The Company had net income of $2,236,575 for the three months
ended June 30, 1996 as compared to a net loss of $6,727,567 for
the same quarter in 1997. The net loss was primarily
attributable to lower gross profit margins, the nonrecurring
charges, increased general and administrative and depreciation
and amortization expenses and increased interest expense incurred
in connection with the Notes and March Debenture. The net income
in 1996 was primarily attributable to the one time extraordinary
gain on extinguishment of debt and improved profit margins on
increased revenues.
SIX MONTHS ENDED JUNE 30, 1997 VERSUS SIX MONTHS ENDED JUNE 30,
1996
Revenues increased $10,271,078, or 72%, from $14,237,945 for the
six months ended June 30, 1996 to $24,509,023 for the six months
ended June 30, 1997. Revenue minutes increased approximately
71,000,000 or 104% from approximately 68,000,000 during the six
months ended June 30, 1996 to approximately 139,000,000 for the
same six month period in 1997. The acquisition of Addtel
contributed $6,270,118 in retail revenue and $5,221,078 in
wholesale revenue, and the acquisition of FCLD contributed
$1,027,330 in retail revenue. The Company's marketing strategy
continues to be the aggressive marketing of its "1+" services,
which have a higher gross profit margin, and the de-emphasizing
of operator services and wholesale business which are less
profitable product lines.
During the six months ended June 30, 1997, the Company incurred a
$1,833,805 nonrecurring integration charge to operations
comprised of (i) $450,578 for discontinuing the Company's
international call back product line and (ii) $1,383,227 for
integration of the Addtel acquisition from 1996.
-13-
<PAGE>
The $450,578 charge for discontinuing the Company's international
call back product line is principally comprised of employee
associated costs and settlements and bad debts. The $1,383,227
charge for integration of the Addtel acquisition is principally
comprised of costs associated with excess and duplicate personnel
reductions. The integration of Addtel is currently expected to
be completed during the fourth quarter.
In May 1997, the Company began an internal analysis of first
quarter escalating line costs, which management initially
believed were attributable to programming errors related to its
billing software procedures. Upon further review and analysis by
the Company and its professional advisors, the determination was
made that the escalation in line costs was due to network
inefficiencies and not related to unbilled and unbillable revenue
to any significant extent. Accordingly, the $522,141 previously
reported in the first quarter as "Nonrecurring unbillable revenue
costs" was reclassified as cost of revenues.
In connection with its analysis, management of the Company has
strived to identify and correct the inefficiencies in the Company's
network and implemented certain corrective measures. However, to date,
management has not completed its line cost analysis and may implement
further corrective measures if other ineffiiencies are identified or
the currentl identifed inefficiencies do not respond to the measures
currently in place. While management of the Company currently believes
that the Company's gross profit margins will be positively impacted
somewhat during the third quarter by such corrections as well as the
Company's reduction in force instituted July 29, 1997, there can be
no assurance that such measures will result in any positive impact to
the Company's short or long term financial position. Futhermore, no
assurances can be given that the Company will identify all or any of
the perceived inefficiencies or that if identified, the Company will
be able to construct or implement adequate cirrective measures.
Gross profit on retail revenues decreased by $2,467,134 from
$5,924,189 for the six months ended June 30, 1996 to $3,457,055
for the same period in 1997. The gross profit margin on these
retain revenues decreased by 24% from 42% for the six months
ended June 30, 1996 to 18% for the six months ended June 30,
1997. This decrease was primarily attributable to approximately
$2,993,000 of network inefficiencies and the reevaluation and
adjustment of certain transmission and approximately $1,700,000
due toand access charges which the Company previously believed
were overbilled by their long line transmission carriers and
several local exchange carriers. Such network inefficiencies
include, without limitation, routing problems, improved lease
cost, carrier routings and elimination of excess capacity.
Gross profit on wholesale revenues increased by $25,222 from
$23,998 for the six months ended June 30, 1996 to $49,220 for the
same period in 1997. The gross profit margin on these wholesale
revenues decreased by 19% from 20% for the six months ended June
30, 1996 to 1% for the six months ended June 30, 1997 due to the
lower margins associated with the Addtel wholesale business and
approximately $175,000 of credits granted to one wholesale customer
during the second
quarter of 1997.
Gross profit on total revenues decreased by $2,441,912 from
$5,948,187 for the six months ended June 30, 1996 to $3,506,275
for the same period in 1997. The overall gross profit margin
decreased by 28% from 42% for the six months ended June 30, 1996
to 14% for the six months ended June 30, 1997. The overall
decline in gross profit margin is due to the lower margin
wholesale revenue acquired in the Addtel acquisition, network
inefficiencies, and the reevaluation and adjustment of certain
transmission and access charges which the Company previously
believed were overbilled by their long line transmission carriers
and several local exchange carriers.
General and administrative expense increased by $3,084,601 from
$4,698,847 for the six months ended June 30, 1996 to $7,783,448
for the same quarter in 1997, and as a percentage of revenue,
decreased from 33% in 1996 to 32% in 1997. The increase in total
general and administrative expense is primarily attributable to
the Addtel acquisition. The full impact of the general and
administrative expense reductions from the continuing integration
of Addtel will not be realized until this process is completed,
which is currently expected to occur during the fourth quarter.
The decrease as a percentage of revenues is attributable to cost
containment measures instituted in the first quarter offset by
bad debts of approximately $409,000 predominately related to
one retail customer.
Depreciation and amortization expense increased by $1,418,529
from $947,816 for the six months ended June 30, 1996 to
$2,366,345 for the same quarter in 1997, and as a percentage of
revenues, increased from 7% in 1996 to 10% in 1997. This
increase resulted from higher depreciation and amortization
charges arising from the acquisitions of FCLD
-14-
<PAGE>
and Addtel, increased depreciation from the acquisition of
switching and other network equipment, and amortization of debt
issuance cost related to the Notes issued in August 1996.
EBITDA (loss) decreased by $5,603,770 from a positive $1,249,340
for the six months ended June 30, 1996 to a negative $4,354,430
for the same period in 1997. EBITDA (loss) was negatively
impacted by lower gross profit margins and by the increase in
general and administrative expenses.
During the six months ended June 30, 1997, the Company incurred a
$1,833,805 nonrecurring integration charge to operations
comprised of (i) $450,578 for discontinuing the Company's
international call back product line and (ii) $1,383,227 for
integration of the Addtel acquisition from 1996.
The $450,578 charge for discontinuing the Company's international
call back product line is principally comprised of employee
associated costs and settlements and bad debts. The $1,383,227
charge for integration of the Addtel acquisition is principally
comprised of costs associated with excess and duplicate personnel
reductions. The integration of Addtel is currently expected to
be completed during the fourth quarter.
The Company had income from operations of $301,524 for the six
months ended June 30, 1996 versus a loss from operations of
$8,477,323 for the same period in 1997. This decrease was
primarily attributable to lower gross profit margins, increased
general and administrative and depreciation and amortization
expenses, and nonrecurring charges.
The Company had net other expense of $646,270 for the six months
ended June 30, 1996 compared to the net other expense of
$1,582,820 for the same period in 1997. This increase was
primarily due to an increase in interest expense from $693,860 to
$1,710,310 related to the offering of the Notes and the March
Debenture.
The Company recognized a gain on extinguishment of debt of
$2,149,191 for the six months ended June 30, 1996. This gain
relates to the Company's redemption of securities issued in
connection with the USC acquisition for an aggregate of 843,023
shares of the Company's Common Stock and $308,500 of cash. These
securities redeemed included (i) notes having an aggregate
principal amount of $3,150,000 and bearing interest at 11% per
annum, (ii) an aggregate of 125,000 shares of Series B Cumulative
Convertible Preferred Stock, and (iii) a warrant which was
exercisable into an aggregate of 1,050,000 shares of the
Company's Common Stock at any time prior to July 31, 2000 at a
per share exercise price of $1.25.
The Company had net income of $1,804,445 for the six months ended
June 30, 1996 as compared to a net loss of $10,060,143 for the
same period in 1997. The net loss was primarily attributable to
lower gross profit margins, the nonrecurring charges, increased
general and administrative and depreciation and amortization
expenses and increased interest expense incurred in connection
with the Notes and March Debenture. The net income was primarily
attributable to the one time extraordinary gain on extinguishment
of debt and improved profit margins on increased revenues.
Liquidity and Capital Resources
- -------------------------------
On August 12, 1996, the Company completed a $27.2 million private
placement of the Notes, which are generally convertible at any
time prior to maturity at a conversion price of $2.55 per share,
subject to adjustments in certain circumstances. The Notes are
redeemable at the option of the Company in whole or in part at
any time on or after August 15, 1999 at annual redemption prices
starting at 107% of principal, plus accrued interest to the
redemption date. Each holder of the Notes has the right to
require the Company to repurchase the Notes in the event that all
three of the following events occur: (i) the Company incurs
certain indebtedness, (ii) the Pro-Forma Interest Coverage (as
defined in the Indenture with respect to the Notes) is less than
2.0 to 1, and (iii) the average closing price of the Company's
Common Stock is less than $2.00 per share for the preceding
twenty trading days (the "$2 Minimum Threshold"). Semi-annual
cash interest payments of $1.4 million will be due on the Notes
during each February and August until August 2006.
-15-
<PAGE>
The Company used the net proceeds received from the offering of
the Notes of approximately $25.4 million after deducting
estimated transaction related fees and expenses to (i) refinance
existing bank debt to Norwest Bank Minnesota, N.A. of
approximately $7 million, (ii) exercise the Company's option to
purchase 843,023 shares of the Company's Common Stock from former
USC shareholders for approximately $2.9 million, (iii) redeem or
repurchase certain of the Company's outstanding debentures for
$2.1 million, and (iv) approximately $13.4 million was utilized
to effect the Addtel and FCLD acquisitions and for network
expansion and working capital.
On January 9, 1997, the Company completed a line of credit
arrangement with Greyrock Business Credit ("Greyrock"), a
division of NationsCredit Commercial Corporation. The line of
credit has maximum availability of $10 million, with borrowings
based on 80% of eligible accounts receivable and inventory, other
than receivables arising from telecommunications services
rendered to customers which are billed to the customers by
regional Bell operating company, a Bell operating
company, a local exchange company, a credit card company, or a
provider of local telephone services. The borrowings are secured
by all of the assets of the Company and its subsidiaries and the
stock of the Company's subsidiaries. The line of credit matures
December 31, 1997 and automatically renews for successive
additional one year terms unless either party elects to terminate
by giving written notice to the other not less than 60 days prior
to the next maturity date.
The borrowings bear interest at a floating rate of 2.5% above the
reference rate of Bank of America NT & SA, provided that the
interest rate is not less than 9% per annum. Interest is payable
monthly and to the extent that accrued interest does not equal
$10,000 per month, the Company is required to pay an unused line
of credit fee of such difference. The initial borrowing by the
Company under this facility aggregated $1.6 million principal
amount on January 9, 1997, and as of June 30, 1997, the Company
had $3,979,505 principal amount of indebtedness under such
facility. Proceeds from this line were used to make the
$1,382,667 interest payment on the Notes on February 15, 1997.
In order to improve the Company's working capital position and
help mitigate shortfalls, the Company reached an agreement with
Greyrock during the second quarter to expand the borrowing base
of eligible accounts receivable to include both unbilled and
billed receivables. Although loan balances fluctuate daily based
on the amounts of accounts receivable and collection, the
Company has generally reached the maximum borrowing amount
available based on the new calculation of eligible amounts
receivable.
The agreements regarding the line of credit contain covenants
which, among other matters, limit the ability of the Company and
its subsidiaries to take the following actions without the
consent of Greyrock: (1) merge, consolidate and acquire or sell
assets, (2) incur indebtedness outside the ordinary course of
business which would have a material adverse effect on the
Company and its subsidiaries taken as a whole or on the prospect
of repayment of the obligations under the line of credit, (3) pay
dividends other than stock dividends and certain dividends with
respect to the Company's Series A Cumulative Convertible
Preferred Stock ("Series A Preferred Stock"), and (4) redeem,
purchase or acquire its capital stock.
On March 25, 1997, the Company completed a private placement of
a $3.8 million principal amount of the March Debenture, and on
August 13, 1997, the Company completed a private placement of a
$5.0 million principal amount of the Company's 10% Convertible
Debenture due 2006 (the "August Debenture"). In connection with
the issuance of the August Debenture, the March Debenture was
amended by the attachment of an allonge, and both the March
Debenture, as amended and the August Debentures (the "Debentures")
are initially convertible at any time prior to maturity at a
conversion price of $1.50 per share, subject to adjustments in
certain circumstances. Both the Debentures are redeemable at
the option of the Company in whole or in part at any time on
or after August 15, 1999 at annual redemption prices starting
at 107% of principal, plus accrued interest to the redemption
date. Each holder has the right to require the Company to
purchase the Debentures in the event that all three of the
following events occur: (i) the Company incurs certain
indebtedness, (ii) the Pro-Forma Interest Coverage (as defined in
the Debentures the same as such term is defined in the Indenture
with respect to the Notes) is less than 2.0 to 1, and (iii) the
$2 Minimum Threshold is not met.
-16-
<PAGE>
The Company used approximately $1.5 million of the $3.2 million
of net proceeds received from the sale of the March Debenture to
reduce indebtedness outstanding from time to time under the
Greyrock Facility, and used the remaining $1.7 million for
working capital. The Company used approximately $1.5 million of
the $3.3 million of net proceeds received from the sale of the
August Debenture to make the August 15, 1997 interest payment on
the Notes and the Debentures, and the Company plans to use the
remainder for general corporate purposes, including the payment
of past due invoices from creditors of the Company and its
subsidiaries, including long line and local exchange carriers,
and litigation settlements.
Since October 22, 1996, the $2 Minimum Threshold has not been
met. Additionally, the Company's Pro Forma Interest Coverage
remains less than 2.0 to 1. Therefore, if the Company incurs
additional indebtedness (other than as permitted under the
Indenture and the Debentures), then the holder of the Notes and
the Debentures would have the right to require the Company to
repurchase the Notes and the Debentures. Should holders of the
Notes or the Debentures ever have the ability to cause the
Company to repurchase the Notes or the Debentures, there can be
no assurance that the Company would have sufficient liquidity to
effect such repurchase. As of June 30, 1997, after taking into
account the indebtedness represented by the August Debenture, the
Company would have been able to incur approximately $6.2 million in
additional indebtedness under the Indenture and the Debentures.
The Company presently anticipates entering into extended payment
terms with one or more creditors which may involve promissory
notes which would further reduce this amount.
The Company experienced negative cash flow from operating
activities of $11,217,529 for the six months ended June 30, 1997
as compared to $342,915 for the like period in 1996. These
negative cash flows include approximately $215,000 of claims for
the six months ended June 30, 1997 and approximately $542,000
claims for the six months ended June 30, 1996, each related to
amounts for transmission and access charges which the Company has
paid but believes were overbilled by the Company's long line
transmission carriers and several local exchange carriers. Total
claims receivable at June 30, 1997 are approximately $215,000.
The Company has been and intends to continue to vigorously pursue
settlement of these disputed charges by demanding cash repayment
or credit against future billings. In addition, the Company has
withheld approximately $1,047,000 on invoiced amounts from its long
line carriers regarding on-going dispute over credit amounts.
Any failure of the Company to ultimately obtain such repayments
or credit against future billings would have a material adverse
effect on the Company's cash flow and results of operations.
In conjunction with the reevaluation of certain transmission and
access charges which the Company previously believed were
overbilled by their long line transmission carriers and local
exchange carriers, the Company incurred a non-cash charge of
approximately $1.2 million to cost of revenues during the second
quarter of 1997.
The overall deterioration in cash flow used in operating
activities is principally attributable to increased operating
losses, the decrease in other accounts receivable due to the
reevaluation of certain transmission and access charges which the
Company previously believed were overbilled by their long line
transmission carriers and several local exchange carriers, and
the significant decrease in accounts payable and accrued expenses
due to payment of contractual obligations with Addtel's line cost
vendors. In order to have sufficient working capital for
operations and to make semi-annual cash interest payments on the
Notes and the Debentures of $1.8 million, the Company must expand
its available borrowings under the Greyrock credit facility,
obtain concessions in the amount and/or timing of vendor obligations,
borrow other additional funds or sell debt or equity securities or a
combination of the foregoing.
The Company began phasing out Addtel's wholesale business during
the second quarter and expects the process to be completed during
the third quarter of 1997. Management anticipates that this
phase out will have an immaterial effect on the Company's overall
gross profit margin. However, cash flow has been and will be
negatively impacted during and after the phase out because
wholesale accounts receivable are generally collected in 30 days
after customer billing and related line costs are generally
payable in 60 to 90 days from carrier invoice date.
-17-
<PAGE>
Cash used in investing activities was $8,921,120 for the second
quarter of 1997 versus $1,534,857 for the like quarter in 1996.
Of the total in the second quarter of 1997, $8,000,000 was
utilized in the acquisition of Addtel. $897,239 of the total
during the first six months of 1997 versus $1,534,857 during the
first six months of 1996 was attributable to expenditures for
property and equipment primarily related to switching equipment
and network associated costs.
Cash provided by financing activities was $5,778,183 during the
first six months of 1997 versus $3,010,138 during the first six
months of 1996. The majority of the increase in 1997 is
attributable to the sale of the March Debenture in March 1997 and
borrowings under the Greyrock facility.
On July 29, 1997 the Company began the implementation of a
restructuring plan to more closely align the Company's expense
levels with revenues. The restructuring plan involved all areas
of the Company and included a reduction in force and
reconfiguration of the Company's network coupled with the closing
of substantially all of the Company's outlying sales offices in
leased office locations. Specifically, the Company terminated
approximately 17% of the employees across a broad spectrum of job
classifications. Management of the Company currently believes
that general and administrative expenses and cost of revenues
will be reduced from these actions beginning in the last month of
the third quarter.
As of August 11, 1997, the Company entered into an agreement with
the former shareholders of Addtel (the "Former Shareholders"),
pursuant to which purchase price adjustments and indemnification
claims adjustments were made to the $1.5 million portion of the
initial $9.5 million purchase price for the Company's purchase of
all the issued and outstanding capital stock of Addtel. Such
adjustments resulted in such $1.5 million of the remaining
purchase price being reduced to $792,000. Interest at the rate
of 5.3% per annum will continue to accrue on such adjusted amount
until paid. Management presently expects to negotiate extended
payment terms which may result in a promissory note. Such
promissory note would further reduce the availability of
additional permitted indebtedness under the Notes and Debentures.
The Company has past due invoices from WorldCom, Inc.
("WorldCom"), MCI Communications, Inc. and other long line and
local exchange carriers aggregating approximately $4.9 million as
of August 15, 1997. As is standard in such contracts, such
carriers have the right to terminate services to the Company for
nonpayment upon the expiration of limited periods of time after
written notice of termination. Management of the Company
currently believes that termination by WorldCom, MCI and/or US
West, which involve a total of approximately $4.1 million as of
such date, would have a material adverse effect on the Company's
operations.
Although management of the Company currently believes that cash
flows generated from operations will improve with the full
integration of Addtel, the reduction in expenses associated with
the reduction in force and reconfiguration of the Company's
telecommunications network as part of the restructuring plan, the
Company's working capital is not sufficient to meet current
obligations without an infusion of additional working capital
and/or extensions of payments to creditors.
Semi-annual cash interest payments of approximately $1.8 million
will be due on the Notes and Debentures each August 15, and
February 15 beginning February 15, 1998 until August 15, 2006.
As of June 30, 1997, the Company's total consolidated liabilities
(including the Notes, the March Debenture and the indebtedness
outstanding under the Greyrock Facility on such date) was $48.3
million. At June 30, 1997, the Company's long term debt was
$33.9 million, of which $.9 million was the current portion. Of
such long term debt, $27,200,000 principal amount is attributable
to the Notes and $3,800,000 principal amount is attributable to
the March Debenture.
-18-
<PAGE>
Previously, management of the Company believed that, among other
sources of cash, additional debt was available to the Company to
the extent that it was unable to develop one or more sources of
cash flow prior to the date on which payments were due on its
obligations. Management now believes that unless the Company's
financial position improves, it will be difficult for the
Company to borrow significant additional amounts in the future
even though such amounts may constitute additional permitted
indebtedness under the indenture with respect to the Notes and
the Debentures. As of June 30, 1997, and taking into effect the
issuance of the August Debenture, the Company would be entitled
to incur approximately $6.2 million of such additional permitted
indebtedness. Such amount does not include approximately $3.3
million which the Company presently owes to WorldCom for
telecommunications services, for which the Company is negotiating
with WorldCom to be paid in the form of a promissory note. As
such, management of the Company believes that its ability to make
cash interest payments on the Notes and the Debentures is
becoming increasingly more dependent upon (i) improved financial
performance of the Company, (ii) investing in companies or assets
that will provide substantial cash flow, (iii) selling equity
through public or private offerings or to strategic business
partners willing to acquire an interest in the Company or its
businesses, (iv) developing one or more sources of significant
cash flow prior to the date on which cash interest obligations
are due, including the sale, merger, consolidation of the Company
and/or its assets, or (v) refinancing all or a portion of the
Notes, and/or other debt of the Company. There can be no
assurances that these or other sources of funds will be
available.
At June 30, 1997, the Company had a cash and cash equivalent
balance of $-0- as compared to $14,360,466 at December 31, 1996.
The decline in cash was principally attributable to (i) the $8
million purchase price of Addtel, (ii) $11.2 million cash used in
operating activities, and (iii) $1.2 million and $897,000 for
principal payments and capital expenditures, respectfully. The
decline was partially offset by $3.2 million net proceeds from
the sale of the March Debenture and $4 million under the Greyrock
line of credit. As of June 30, 1997, working capital was a
negative $8,861,478 as compared to a negative $3,011,355 at
December 31, 1996.
On July 31, 1997, pursuant to the terms of the Company's Series A
Preferred Stock, a dividend of $129,600 accrued and accumulated
with respect to the shares of Series A Stock outstanding on such
date. The Company does not currently have sufficient capital
surplus to pay such dividend either in cash or in kind under
Delaware corporate law.
Capital Expenditures
- --------------------
Capital expenditures for the six months ended June 30, 1997
totaled $2,911,804, of which $2,014,565 was financed. The
majority of these capital expenditures relate to switching
equipment acquired by means of capital leases and network costs.
Other than additional fixed facilities such as switching
equipment requirements as the network expands and peripheral
equipment and software such as billing systems to support such
expansion, future capital expenditures are expected to be
minimal. The Company's future capital expenditures related to
network expansion will be made primarily to acquire switches and
related equipment. Additional switching equipment would require
significant capital expenditures by the Company.
Holiday and Seasonal Variations in Revenues
- -------------------------------------------
The Company's revenues, and thus its potential earnings, are
affected by holiday and seasonal variations. A substantial
portion of the Company's revenues are generated by direct dial
domestic long distance commercial customers, and, accordingly,
the Company experiences decreases in revenues around holidays
(both domestic and international) when commercial customers
reduce their usage. The Company's fourth fiscal quarter ending
December 31, which includes the Thanksgiving, Hanukkah, Christmas
and New Year's Eve holidays, and the Company's first fiscal
quarter ending March 31, historically have been the slowest
revenue periods of the Company's fiscal year. The Company's
fixed operating expenses, however, do not decrease during these
quarters. Accordingly, the Company will likely experience lower
revenues and earnings in its first and fourth fiscal quarters
when compared with the other fiscal quarters.
-19-
<PAGE>
Effect of Inflation
- -------------------
Inflation is not a material factor affecting the Company's
business. Historically, transmission and switched service costs
per minute have decreased as the volume of minutes increased.
General operating expenses such as salaries, employee benefits
and occupancy costs are, however, subject to normal inflationary
pressures. Management has been able to contain these expenses
through cost control measures.
Part II - OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
On July 23, 1997, a suit was filed against the Company by NTS
Communications, Inc. in the 364th District Court of Lubbock
County, Texas, Cause No. 97-560,640 (NTS COMMUNICATIONS, INC. VS.
SA TELECOMMUNICATIONS, INC., D/B/A/ U.S. COMMUNICATIONS, INC.,
D/B/A/ LONG DISTANCE NETWORK, INC., AND D/B/A/ SOUTHWEST LONG
DISTANCE NETWORK, INC.). On August 6, 1997, the plaintiff
amended its original petition to add USC, LDN and Southwest
Long Distance Network, Inc. as defendants. The suit was filed
by a vendor alleging nonpayment of telecommunications services
provided by such vendor to the Company under a contract with
the Company in the amount of $864,436.10 and seeks such amount
plus interest and attorney's fees. The Company anticipates
filing an answer in this lawsuit as soon as it has completed
its internal review and investigation of the allegations made.
On February 24, 1997, the parties reached a settlement with
respect to the lawsuit filed in the 101st Judicial District Court
for Dallas County, Texas, Cause No. 95-07136-E (SILVIO AVYAM V.
SA HOLDINGS, INC. AND NORTH AMERICAN TELECOMMUNICATIONS
CORPORATION), the terms of which were not material to the
Company. As part of such settlement, the lawsuit in Dallas,
Texas was dismissed on June 10, 1997 and the criminal complaint
filed by Mr. Avyam in Guatemala City, Guatemala against NATC, the
Company's former President and Chief Operating Officer and two
other NATC employees was also dismissed.
The Company filed suit on January 23, 1996 against Dickinson &
Co., an investment banking firm ("Dickinson"), its parent,
Dickinson Holding Corp. and Polish Telephone and Microwave
Corporation ("PTMC") in the 298th Judicial District Court for
Dallas County, Texas, Cause No. 96-00768-M (SA
TELECOMMUNICATIONS, INC. F/K/A SA HOLDINGS V. DICKINSON CO. &
DICKINSON HOLDINGS CORP. AND POLISH TELEPHONE AND MICROWAVE
CORPORATION). The Company has alleged, among other claims, that
Dickinson intentionally and willfully breached its fiduciary duty
to the Company under its financial consulting agreement with the
Company and that it interfered with the business relationship
between the Company and PTMC in conspiracy with the other two
defendants. The Company is seeking an unspecified amount of
actual and exemplary damages and recovery of attorneys fees. The
matter is presently scheduled for trial on November 24, 1997.
On December 19, 1996, a suit was filed in the Circuit Court of
the 20th Judicial Circuit, St. Clair County, Illinois (THE PEOPLE
OF THE STATE OF ILLINOIS VS. LONG DISTANCE NETWORK, INC.), Cause
No. 96CH394. This is a suit by the Attorney General of the State
of Illinois against LDN alleging violations of Sections 2 and 2DD
of the Illinois Consumer Fraud and Deceptive Business Practices
Act ("Consumer Fraud Act") arising out of LDN's use of an
independent agent to solicit long distance customers through the
use of the agent's sweepstakes promotion. The suit states that
the Attorney General has received approximately 26 consumer
complaints through December 1996 and basically alleges that
Illinois consumers have had their chosen long distance carrier
switched without valid authorization (through misrepresentation
and/or forgery), and that the sweepstakes promotion constituted
an illegal lottery. Plaintiff is seeking among other remedies:
(i) findings that LDN has violated such sections of the Consumer
Fraud Act and assessing a civil penalty in the amount of up to
$50,000 per violation if the court finds LDN engaged in such acts
with intent to defraud, and if without intent to defraud, a
single penalty of up to $50,000, (ii) a permanent injunction
against such acts and such sweepstakes promotion, (iii) a
declaration that all contracts entered into between LDN and
Illinois consumers as a result of such acts be rescinded,
(iv) full restitution to all Illinois consumers who paid for
telephone charges billed by or on behalf of LDN as a result of
such actions and cancellation of any related charges assessed
against Illinois residents, and (v) costs of prosecution and
investigation. The parties have entered into a stipulation
extending the time for LDN's answer in such suit while the
parties are engaged in negotiations aimed at resolving these
matters. A case management conference is currently scheduled on
August 26, 1997.
-20-
<PAGE>
The Company is a party, from time to time, in routine litigation
incident to its business. Management believes that it is
unlikely that the final outcome of any of these claims or
proceedings to which the Company is currently a party if
determined adverse to the Company would have a material adverse
effect on the Company's financial position or results of
operations.
Item 2. CHANGES IN SECURITIES.
(c) On August 13, 1997, the Company sold the August Debenture to
an accredited investor for $3.5 million. The August
Debenture matures on August 15, 2006. As part of such
transaction, the March Debenture issued by the Company in
the principal amount of $3.8 million was amended by the
attachment of an allonge. The August Debenture and the
March Debenture as so amended are currently convertible at
any time prior to maturity, unless previously redeemed, into
shares of Common Stock of the Company at an initial
conversion price of $1.50 per share (currently an aggregate
of 5,866,666 shares of Common Stock), subject to adjustment
in certain circumstances. The transaction was effected in
reliance upon Section 4(2) of the Securities Act of 1933, as
amended (the "Act"). The purchaser was provided with access
to all relevant information regarding the Company. The
purchaser represented to the Company that it was an
"accredited investor" as defined under the Act and that the
August Debenture was purchased for investment purposes only
and not with a view toward distribution.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the Annual Meeting of Stockholders of the Company on May
29, 1997, holders of 12,372,995 shares of the Company's Common
Stock were present in person or by proxy, constituting a quorum.
The proposals described below were voted on by such stockholders
of the Company as follows:
(1) A proposal to elect four (4) directors for a three-year term
or until their respective successors are elected and
qualified as follows: John Q. Ebert, Dean A. Thomas, John H.
Nugent and Barry J. Williams, M.D. Such Proposal was
approved as follows:
Nominee For Against Abstain
-------------- ---------- ------- -------
John Q. Ebert * 12,272,250 21,179 79,570
Dean A. Thomas 12,260,700 32,425 79,570
John H. Nugent 12,272,100 21,325 79,570
Barry J. Williams, M.D. 12,265,600 27,825 79,570
* Mr. Ebert resigned from the Board of Directors
effective as of July 3, 1997.
-21-
<PAGE>
(2) A proposal to approve and adopt certain amendments to the
Company's 1994 Employee Stock Option Plan. Such proposal was
approved as follows:
For Against Abstain
--------- ------- -------
4,014,142 589,128 27,305
(3) A proposal to ratify the Board of Director's appointment of
Price Waterhouse LLP as independent public accountants for
the Company for the fiscal year ending December 31, 1997.
Such proposal was approved as follows:
For Against Abstain
---------- ------- -------
12,309,295 51,450 12,250
Item 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
Exhibit
No. Description
- --- -----------
3.1 Amended and Restated Bylaws of Registrant*
10.1 Purchase Agreement dated August 13,1997 between
Registrant and Northstar High Total Return Fund*
10.2 Consulting Agreement dated August 13, 1997 between
Registrant and Howard Curd*
27.1 Financial Data Schedule*
___________
* Filed herewith
(b) Reports on Form 8-K
The Company filed on July 7, 1997, a Current Report on Form
8-K dated July 3, 1997, announcing the election of John H.
Nugent as interim President and Chief Operating Officer
replacing Paul R. Miller in such position. No financial
statements were filed.
The Company filed on July 22, 1997, a Current Report on Form
8-K dated July 21, 1997, announcing the resignation of Jack
W. Matz, Jr. as Chairman and Chief Executive Officer of the
Company and the election of Howard F. Curd as Chairman of
the Board of Directors. No financial statements were filed.
-22-
<PAGE>
In accordance with the requirements of the Exchange Act, the
Registrant has caused this report to be signed by the undersigned
thereunto duly authorized.
Date: August 19, 1997 SA TELECOMMUNICATIONS, INC.
By: /s/ HOWARD F. CURD
--------------------------
Howard F. Curd
Chairman of the Board
By: /s/ J. DAVID DARNELL
--------------------------
J. David Darnell
Vice President, Finance and
Chief Financial Officer
-23-
<PAGE>
INDEX TO EXHIBITS
Exhibit No. Description
- ----------- -----------
3.1 Amended and Restated Bylaws of Registrant*
10.1 Purchase Agreement dated August 13,1997
between Registrant and Northstar High Total
Return Fund*
10.2 Consulting Agreement dated August 13, 1997
between Registrant and Howard Curd*
27.1 Financial Data Schedule*
_____________
* Filed herewith
-24-
AMENDED AND RESTATED BY-LAWS
OF
SA TELECOMMUNICATIONS, INC.
ARTICLE I - STOCKHOLDERS
Section 1. Annual Meeting
- ---------- --------------
An annual meeting of the stockholders, for the election of
directors to succeed those whose terms expire and for the
transaction of such other business as may properly come before the
meeting, shall be held at such place on such date, and at such time
as the Board of Directors shall each year fix, which date shall be
within thirteen months subsequent to the later of the date of
incorporation or the last annual meeting of stockholders.
Section 2. Special Meetings
- ---------- ----------------
Special meetings of the stockholders, for any purpose or
purposes prescribed in the notice of the meeting, may be called by
the Board of Directors or the Chief Executive Officer and shall be
held at such place, on such date, and at such time as they or he
shall fix.
Section 3. Notice of Meetings
- ---------- ------------------
Written notice of the place, date, and time of all meetings of
the stockholders shall be given, not less than ten nor more than
sixty days before the date on which the meeting is to be held, to
each stockholder entitled to vote at such meeting, except as
otherwise provided herein or required by law (meaning, here and
hereinafter, as required from time to time by the General
Corporation Law of the State of Delaware or the Certificate of
Incorporation).
When a meeting is adjourned to another place, date or time,
written notice need not be given of the adjourned meeting if the
place, date, and time thereof are announced at the meeting at which
the adjournment is taken, provided, however, that if the date of
any adjourned meeting is more than thirty days after the date for
which the meeting was originally noticed, or if a new record date
is fixed for the adjourned meeting, written notice of the place,
date, and time of the adjourned meeting shall be given in
conformity herewith. At any adjourned meeting, any business may be
transacted which might have been transacted at the original
meeting.
Section 4. Quorum
- ---------- ------
At any meeting of the stockholders, the holders of a majority
of all of the shares of the stock entitled to vote at the meeting,
present in person or by proxy, shall constitute a quorum for all
purposes, unless or except to the extent that the presence of a
larger number may be required by law.
<PAGE>
If a quorum shall fail to attend any meeting, the chairman of
the meeting or the holders of a majority of the shares of the stock
entitled to vote who are present, in person or by proxy, may
adjourn the meeting to another place, date, or time.
If a notice of any adjourned special meeting of stockholders
is sent to all stockholders entitled to vote thereat, stating that
it will be held with those present constituting a quorum, then
except as otherwise required by law, those present at such
adjourned meeting shall constitute a quorum, and all matters shall
be determined by a majority of the votes cast at such meeting.
Section 5. Organization
- ---------- ------------
Such person as the Board of Directors may have designated or,
in the absence of such a person, the highest ranking officer of the
corporation who is present shall call to order any meeting of the
stockholders and act as chairman of the meeting. In the absence of
the Secretary of the corporation, the secretary of the meeting
shall be such person as the chairman appoints.
Section 6. Conduct of Business
- ---------- -------------------
The chairman of any meeting of stockholders shall determine
the order of business and the procedure at the meeting, including
such regulation of the manner of voting and the conduct of
discussion as seem to him in order.
Section 7. Proxies and Voting
- ---------- ------------------
At any meeting of the stockholders, every stockholder entitled
to vote may vote in person or by proxy authorized by an instrument
in writing filed in accordance with the procedure established for
the meeting.
Each stockholder shall have one vote for every share of stock
entitled to vote which is registered in his name on the record date
for the meeting, except as otherwise provided herein or required by
law.
All voting, except on the election of directors and where
otherwise required by law, may be by a voice vote; provided,
however, that upon demand therefor by a stockholder entitled to
vote or his proxy, a stock vote shall be taken. Every stock vote
shall be taken by ballots, each of which shall state the name of
the stockholder or proxy voting and such other information as may
be required under the procedure established for the meeting. Every
vote taken by ballots shall be counted by an inspector or
inspectors appointed by the chairman of the meeting.
All elections shall be determined by a plurality of the votes
cast, and except as otherwise required by law, all other matters
shall be determined by a majority of the votes cast.
<PAGE>
Section 8. Stock List
- ---------- ----------
A complete list of stockholders entitled to vote at any
meeting of stockholders, arranged in alphabetical order for each
class of stock and showing the address of each such stockholder and
the number of shares registered in his name, shall be open to the
examination of any such stockholder, for any purpose germane to the
meeting, during ordinary business hours for a period of at least
ten (10) days prior to the meeting, either at a place within the
city where the meeting is to be held, which place shall be
specified in the notice of the meeting, or if not so specified, at
the place where the meeting is to be held.
The stock list shall also be kept at the place of the meeting
during the whole time thereof and shall be open to the examination
of any such stockholder who is present. This list shall
presumptively determine the identity of the stockholders entitled
to vote at the meeting and the number of shares held By each of
them.
ARTICLE II - BOARD OF DIRECTORS
Section 1. Number and Term of Office
- ---------- -------------------------
The number of directors who shall constitute the whole board
shall be such number not less than five nor more than twenty as the
Board of Directors shall at the time have designated. The number
of directors shall be fixed from time to time exclusively by the
Board of Directors pursuant to a resolution adopted by a majority
of the total number of authorized directors (whether or not there
exist any vacancies in previously authorized directorship at the
time any such resolution is presented to the Board for adoption).
Effective immediately upon the filing of a Certificate of Amendment
to the Certificate of Incorporation effecting same, the directors
shall be divided into three classes, as nearly equal in number as
reasonably possible, with the term of office of the first class to
expire at the 1996 Annual Meeting of Stockholders, the term of
office of the second class to expire at the 1997 Annual Meeting of
Stockholders and the term of office of the third class to expire at
the 1998 Annual Meeting of Stockholders. At each Annual Meeting of
Stockholders following such initial classification and election,
directors elected to succeed those directors whose terms expire
shall be elected for a term of office to expire at the third
succeeding Annual Meeting of Stockholders after their election.
Whenever the authorized number of directors is increased
between annual meetings of the stockholders, a majority of the
directors then in office shall have the power to elect such new
directors for the balance of a term and until their successors are
elected and qualified. Any decrease in the authorized number of
directors shall not become effective until the expiration of the
term of the directors then in office unless, at the time of such
decrease, there shall be vacancies on the board which are being
eliminated by the decrease.
<PAGE>
Section 2. Vacancies
- ---------- ---------
If the office of any director becomes vacant by reason of
death, resignation, disqualification, removal or other cause, a
majority of the directors remaining in office, although less than
a quorum, may elect a successor for the unexpired term and until
his successor is elected an qualified.
Section 3. Regular Meetings
- ---------- ----------------
Regular meetings of the Board of Directors shall be held at
such place or places, on such date or dates, and at such time or
times as shall have been established by the Board of Directors and
publicized among all directors. A notice of each regular meeting
shall not be required.
Section 4. Special Meetings
- ---------- -----------------
Special meetings of the Board of Directors may be called by
one-third of the directors then in office or by the Chief Executive
Officer and shall be held at such place, on such date, and at such
time as they or he shall fix. Notice of the place, date and time
of each such special meeting shall be given each director by whom
it is not waived by mailing written notice not less than three days
before the meeting or by telegraphing the same not less than
eighteen hours before the meeting. Unless otherwise indicated in
the notice thereof, any and all business may be transacted at a
special meeting.
Section 5. Quorum
- ---------- ------
At any meeting of the Board of Directors, one-third of the
total number of the whole board, but not less than two, shall
constitute a quorum for all purposes. If a quorum shall fail-to
attend any meeting, a majority of those present may adjourn the
meeting to another place, date, or time, without further notice or
waiver thereof.
Section 6. Participation in Meeting by Conference Telephone
- ---------- ------------------------------------------------
Members of the Board of Directors, or of any committee
thereof, may participate in-a meeting of such board or committee by
means of conference telephone or similar communications equipment
that enables all persons participating in the meeting to hear each
other. Such participation shall constitute presence in person at
such meeting.
Section 7. Conduct of Business
- ---------- -------------------
At any meeting of the Board of Directors, business shall be
transacted in such order and manner as the board may from time to
time determine, and all matters shall be determined by the vote of
a majority of the directors present, except as otherwise provided
herein or required by law. Action may be taken by the Board of
Directors without a meeting if all members thereof consent thereto
in writing, and the writing or writings are filed with the minutes
of proceedings of the Board of Directors.
<PAGE>
Section 8. Powers
- ---------- ------
The board of Directors may, except as otherwise required by
law, exercise all such powers and do all such acts and things as
may be exercised or done by the corporation, including, without
limiting the generality of the foregoing, the unqualified power:
(1) To declare dividends from time to time in accordance with
law;
(2) To purchase or otherwise acquire any property, rights or
privileges on such terms as it shall determine;
(3) To authorize the creation, making and issuance, in such
form as it may determine, of written obligations of every
kind, negotiable or non-negotiable, secured or unsecured,
and to do all things necessary in connection therewith;
(4) To remove any officer of the corporation with or without
cause, and from time to time to devolve the powers and
duties of any officer upon any other person for the time
being;
(5) To confer upon any officer of the corporation the power
to appoint, remove and suspend subordinated officers and
agents;
(6) To adopt from time to time such stock, option, stock
purchase, bonus or other compensation plans for
directors, officers and agents of the corporation and its
subsidiaries as it may determine;
(7) To adopt from time to time such insurance, retirement,
and other benefit plans for directors, officers and
agents of the corporation and its subsidiaries as it may
determine; and
(8) To adopt from time to time regulations, not inconsistent
with these by-laws, for the management of the
corporation's business and affairs.
ARTICLE III - COMMITTEES
Section 1. Committees of the Board of Directors
- ---------- ------------------------------------
The Board of Directors, by a vote of a majority of the whole
board, may from time to time designate committees of the board,
with such lawfully delegable powers and duties as it thereby
confers, to serve at the pleasure of the board and shall, for those
committees and any others provided for herein, elect a director of
directors to serve as the member or members, designating, if it
desires, other directors as alternative members who may replace any
absent or disqualified member at any meeting of the committee. Any
committee so designated may exercise the power and authority of the
Board of Directors to declare a dividend or to authorize the
issuance of stock if the resolution which designates the committee
or a supplemental resolution of the Board of Directors shall so
provide. In the absence or disqualification of any member of any
committee and any alternate member in his place, the member or
members of the committee present at the meeting and not
disqualified from voting, whether or not he or they constitute a
quorum, may by unanimous vote appoint another member of the Board
of Directors to act at the meeting in place of the absent or
disqualified member.
<PAGE>
Section 2. Conduct of Business
- ---------- -------------------
Each committee may determine the procedural rules for meeting
and conducting its business and shall act in accordance therewith,
except as provided herein or required by law. Adequate provision
shall be made for notice to members of all meetings; one-third of
the members shall constitute a quorum unless the committee shall
consist of one or two members, in which event one member shall
constitute a quorum; and all matters shall be determined by a
majority vote of the members present. Action may be taken by any
committee without a meeting if all members thereof consent thereto
in writing, and the writing or writings are filed with the minutes
of the proceedings of such committee.
ARTICLE IV - OFFICERS
Section 1. Generally
- ---------- ---------
The officers of the corporation shall consist of a Chairman of
the Board, President, one or more Vice-Presidents, a Secretary, a
Treasurer and such other subordinate officers as may from time to
time be appointed by the Board of Directors. Officers shall be
elected by the Board of Directors, which shall consider that
subject at its first meeting after every annual meeting of
stockholders. Each officer shall hold his office until his
successor is elected and qualified or until his earlier resignation
or removal. The Chief Executive Officer shall be a member of the
Board of Directors. Any number of offices may be held by the same
person.
Section 2. Chairman of the Board
- ---------- ---------------------
The Chairman of the Board, shall preside at all meetings of
the stockholders of the corporation and the Board of Directors and
shall have such other powers and duties as may from time to time be
prescribed by the Board of Directors upon written directions given
to him pursuant to resolutions duly adopted by the Board of
Directors.
Section 3. Chief Executive Officer
- ---------- -----------------------
The Chief Executive Officer of the Corporation shall have the
powers and duties of supervision and management of the business and
affairs of the corporation relating to, among other things, market
relations, telecommunications acquisitions, corporate finance and
Russian ventures and shall see that all orders and resolutions of
the Board of Directors are carried into effect. He shall preside
at all meetings of the stockholders and at all meetings of the
Board of Directors unless a Chairman of the Board has been elected,
in which event the Chief Executive Officer shall preside at
meetings of the Board of Directors in the absence or disability of
the Chairman of the Board. He shall have power to sign all stock
certificates, contracts and other instruments of the corporation
which are authorized.
<PAGE>
Section 4. President
- ---------- ---------
The President shall be the chief operating officer of the
corporation. Subject to the provisions of these by-laws and to the
direction of the Chief Executive Officer and the Board of
Directors, he shall have the responsibility for the general
management and control of the affairs and business of the
corporation and shall perform all duties and have all powers which
are commonly incident to the office of President or which are
delegated to him by the Board of Directors. Except with respect to
the Chief Executive Officer, the President shall have general
supervision and direction of all of the other officers and agents
of the corporation. He shall have power to sign all stock
certificates, contracts and other instruments of the corporation
which are authorized.
Section 5. Vice-President
- ---------- --------------
Each Vice-President shall perform such duties as the Board of
Directors or the President shall prescribe. In the absence or
disability of the President, the Vice-President who has served in
such capacity for the longest time shall perform the duties and
exercise the powers of the President.
Section 6. Treasurer
- ---------- ---------
The Treasurer shall have the custody of all monies and
securities of the corporation and shall keep regular books of
account. He shall make such disbursements of the funds of the
corporation as are proper and shall render from time to time an
account of all such transactions and of the financial condition of
the corporation.
Section 7. Secretary
- ---------- ---------
The Secretary shall issue all authorized notices for, and
shall keep minutes of, all meetings of the stockholders and the
Board of Directors. He shall have charge of the corporate books.
Section 8. Delegation of Authority
- ---------- -----------------------
The Board of Directors may from time to time delegate the
powers or duties of any officer to any other officers or agents,
notwithstanding any provision hereof.
Section 9. Removal
- ---------- -------
Any officer of the corporation may be removed at any time,
with or without cause, by the Board of Directors.
<PAGE>
Section 10. Action with Respect to Securities of Other Corporations
- ----------- -------------------------------------------------------
Unless otherwise directed by the Board of Directors, the
President shall have power to vote and otherwise act on behalf of
the corporation, in person or by proxy, at any meeting of
stockholders of or with respect to any action of stockholders of
any other corporation in which this corporation may hold securities
and otherwise to exercise any and all rights and powers which this
corporation may possess by reason of its ownership of securities in
such other corporation.
ARTICLE V - RIGHT OF INDEMNIFICATION OF
DIRECTORS, OFFICERS AND OTHERS
Section 1. Right to Indemnification
- ---------- ------------------------
Each person who was or is made a party or is threatened to be
made a party to or is involved in any action, suit or proceeding,
whether civil, criminal, administrative or investigative
("proceeding"), by reason of the fact that he or she or a person
for whom he or she is the legal representative is or was a director
or officer, employee or agent of the corporation or is or was
serving at the request of the corporation as a director or officer,
employee or agent of another corporation, or of a partnership,
joint venture, trust or other enterprise, including service with
respect to employee benefit plans, whether the basis of such
proceeding is alleged action in an official capacity as a director,
officer, employee or agent or in any other capacity while serving
as a director, officer, employee or agent, shall be indemnified and
held harmless by the corporation to the fullest extent authorized
by the Delaware General Corporation Law, as the same exists or may
hereafter be amended (but, in the case of any such amendment, only
to the extent such amendment permits the corporation to provide
broader indemnification right than said law permitted the
corporation to provide prior to such amendment) against all
expenses, liability and loss (including attorneys' fees, judgments,
fines, ERISA excise taxes or penalties and amounts paid or to be
paid in settlement) reasonably incurred or suffered by such person
in connection therewith. Such right shall be a contract right and
shall include the right to be paid by the corporation expense
incurred in defending any such proceeding in advance of its final
disposition; provided, however, that the payment of such expenses
incurred by a director or officer of the corporation in his or her
capacity as a director or officer (and not in any other capacity in
which service was or is rendered by such person while a director or
officer, including, without limitation, service to an employee
benefit plan) in advance of the final disposition of such
proceeding, shall be made only upon delivery to the corporation of
an undertaking, by or on behalf of such director or officer, to
repay all amounts so advanced if it should be determined ultimately
that such director or officer is not entitled to be indemnified
under this section or otherwise.
<PAGE>
Section 2. Right of Claimant to Bring Suit
- ---------- -------------------------------
If a claim under Section 1 is not paid in full by the
corporation within 90 days after a written claim has been received
by the corporation, the claimant may at any time thereafter bring
suit against the corporation to recover the unpaid amount of the
claim, and if successful in whole or in part, the claimant shall be
entitled to be paid also the expense of prosecuting such claim. It
shall be a defense to any such action (other than an action brought
to enforce a claim for expense incurred in defending any proceeding
in advance of its final disposition where the required undertaking
has been tendered to the corporation) that the claimant has not met
the standards of conduct which make it permissible under the
Delaware General Corporation Law for the corporation to indemnify
the claimant for the amount claimed, but the burden of proving such
defense shall be on the corporation. Neither the failure of the
corporation (including its Board of Directors, independent legal
counsel, or its stockholders) to have made a determination prior to
the commencement of such action that indemnification of the
claimant is proper in the circumstances because he or she has met
the applicable standard of conduct set forth in the Delaware
General Corporation Law, nor an actual determination by the
corporation (including its Board of Directors, independent legal
counsel, or its stockholders) that the claimant had not met such
applicable standard of conduct, shall be a defense to the action or
create a presumption that claimant had not met the applicable
standard of conduct.
Section 3. Non-Exclusivity of Rights
- ---------- -------------------------
The rights conferred by Sections 1 and 2 shall not be
exclusive of any other right which such person may have or
hereafter acquire under any statute, provision of the Certificate
of Incorporation, by-law, agreement, vote of stockholders or
disinterested directors or otherwise.
Section 4. Insurance
- ---------- ---------
The corporation may maintain insurance, at its expense, to
protect itself and any such director, officer, employee or agent of
the corporation or another corporation, partnership, joint venture,
trust or other enterprise against any such expense, liability or
loss, whether.or not the corporation would have the power to
indemnify such person against such expense, liability or loss under
the Delaware General Corporation Law.
ARTICLE VI - STOCK
Section 1. Certificates of Stock
- ---------- ---------------------
Each stockholder shall be entitled to a certificate signed by,
or in the name of the corporation by, the President or a
vice-president, and by the secretary or an assistant secretary, or
the treasurer or an assistant treasurer, certifying the number of
shares owned by him. Any of or all the signatures on the
certificate may be facsimile.
<PAGE>
Section 2. Transfers of Stock
- ---------- ------------------
Transfers of stock shall be made only upon the transfer books
of the corporation kept at an office of the corporation or by
transfer agents designated to transfer shares of the stock of the
corporation. Except where a certificate is issued in accordance
with Section 4 of Article VI of these by-laws, an outstanding
certificate for the number of shares involved shall be surrendered
for cancellation before a new certificate is issued therefor.
Section 3. Record Date
- ---------- -----------
The Board of Directors may fix a record date, which shall not
be more than 60 nor less than 10 days before the date of any
meeting of stockholders, nor more than 60 days prior to the time
for the other action hereinafter described, as of which there shall
be determined the stockholders who are entitled: to notice of or to
vote at any meeting of stockholders or any adjournment thereof; to
express consent to corporate action in writing without a meeting;
to receive payment of any dividend or other distribution or
allotment of any rights; or to exercise any rights with respect to
any change, conversion or exchange of stock or with respect to any
other lawful action.
Section 4. Lost, Stolen or Destroyed Certificates
- ---------- --------------------------------------
In the event of the loss, theft or destruction of any
certificate of stock, another may be issued in its place pursuant
to such regulations as the Board of Directors may establish
concerning proof of such loss, theft or destruction and concerning
the giving of a satisfactory bond or bonds of indemnity.
Section 5. Regulations
- ---------- -----------
The issue, transfer, conversion and registration of
certificates of stock shall be governed by such other regulations
as the Board of Directors may establish.
<PAGE>
ARTICLE VII - NOTICES
Section 1. Notices
- ---------- -------
Whenever notice is required to be given to any stockholder,
director, officer, or agent, such requirement shall not be
construed to mean personal notice. Such notice may in every
instance be effectively given by depositing a writing in a post
office or letter box, in a postpaid, sealed wrapper, or by
dispatching a prepaid telegram, addressed to such stockholder,
director, officer, or agent at his or her address as the same
appears on the books of the corporation. The time when such notice
is dispatched shall be the time of the giving of the notice.
Section 2. Waivers
- ---------- -------
A written waiver of any notice, signed by a stockholder,
director, officer, or agent, whether before or after the time of
the event for which notice is to be given, shall be deemed
equivalent to the notice required to be given to such stockholder,
director, officer, or agent. Neither the business nor the purpose
of any meeting need be specified in such waiver.
ARTICLES VIII - MISCELLANEOUS
Section 1. Facsimile Signature
- ---------- -------------------
In addition to the provisions for the use of facsimile
signatures elsewhere specifically authorized in these by-laws,
facsimile signatures of any officer of officers of the corporation
may be used whenever and as authorized by the Board of Directors or
a committee thereof.
Section 2. Corporate Seal
- ---------- --------------
The Board of Directors may provide a suitable seal, containing
the name of the corporation, which seal shall be in the charge of
the secretary. If and when so directed by the Board of Directors
or a committee thereof, duplicates of the seal may be kept and used
by the treasurer or by the assistant secretary or assistant
treasurer.
Section 3. Reliance Upon Books, Reports, and Records
- ---------- -----------------------------------------
Each director, each member of any committee designated by the
Board of Directors, and each officer of the corporation shall, in
the performance of his duties, be fully protected in relying in
good faith upon the books of account or other records of the
corporation, including reports made to the corporation by any of
its officers, by an independent certified public accountant, or by
and appraiser selected with reasonable care.
Section 4. Fiscal Year
- ---------- -----------
The fiscal year of the corporation shall be as fixed by the
Board of Directors.
Section 5. Time Periods
- ---------- ------------
In applying any provision of these by-laws which requires that
an act be done or not done a specified number of days prior to an
event or that an act be done during a period of a specified number
of days prior to an event, calendar days shall be used, the day of
the doing of the act shall be excluded, and the day of the event
shall be included.
ARTICLE IX - AMENDMENTS
These by-laws may be amended or repealed by the Board of
Directors at any meeting or by the stockholders at any meeting.
EXHIBIT 10.1
PURCHASE AGREEMENT
This Purchase Agreement dated as of August 13, 1997, is made
by and between SA Telecommunications, Inc., a Delaware corporation
(the "Company") and Northstar High Total Return Fund ("Purchaser").
WHEREAS, the Company has previously issued a 10% Convertible
Debenture Due 2006 in the principal amount of $3,800,000,
convertible into Common Stock of the Company, to the Purchaser on
March 25, 1997;
WHEREAS, the Purchaser and the Company have agreed to amend
certain terms applicable to such Prior Debenture through the
attachment of an Allonge;
WHEREAS, the Company is empowered to issue additional
indebtedness for any of the objects and purposes of the Company;
WHEREAS, for its lawful corporate purposes, the Company has
duly authorized the issuance of an additional 10% Convertible
Debenture Due 2006 in the principal amount of $5,000,000,
convertible into Common Stock of the Company, to be issued under
and pursuant to the provisions of this Agreement;
WHEREAS, the Debenture is being offered and sold to the
Purchaser without being registered under the Securities Act of
1933, as amended; and
WHEREAS, upon and subject to the terms and conditions of this
Agreement, the Company has agreed to issue and sell the Debenture
to the Purchaser, and the Purchaser has agreed to purchase the
Debenture from the Company;
NOW, THEREFORE, in consideration of the premises and the
purchase of the Debenture by the Purchaser, and the agreement to
amend the Prior Debenture through the attachment of an Allonge, the
Company and the Purchaser hereby agree as follows:
1. DEFINITIONS. The terms defined in this Section 1 shall have
for all purposes of this Agreement the respective meanings
specified in this Section 1.
"Act" means the Securities Act of 1933, as amended.
"Agreement" means this Purchase Agreement as originally
executed or, if amended or supplemented as herein provided, as
so amended or supplemented.
"Allonge" means that certain allonge to the Prior Debenture in
the form of Exhibit A hereto.
"Closing" means the closing of the transactions contemplated
hereby.
"Commission" means the Securities and Exchange Commission.
- -----------------------------------------------------------------
Purchase Agreement - Page 1
<PAGE>
"Common Stock" means the common stock, $0.0001 par value, of
the Company.
"Company" means SA Telecommunications, Inc., a Delaware
corporation.
"Confidential Disclosure Statement" means the Confidential
Disclosure Statement dated August 13, 1997 attached as Exhibit
B hereto.
"Debenture" means that certain 10% convertible debenture of
the Company in the face amount of $5,000,000 in the form of
Exhibit C hereto which shall be issued by the Company to the
Purchaser at the Closing.
"Debenture Agreements" includes this Agreement, the Allonge,
the Debenture, the Registration Rights Agreement and any other
documents required by this Agreement as a condition to the
Purchaser purchasing the Debenture or executed or delivered by
the Company and/or Purchaser at the Closing.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Incorporated Documents" means the documents which at the time
are incorporated by reference in the Memorandum or any
amendment or supplement thereto.
"Indenture" means the Indenture dated as of August 12, 1996
between the Company and United States Trust Company of New
York, as Trustee, with respect to the Prior Notes.
"June 30 Financial Statements" means the Company's unaudited
substantially complete financial statements for the quarter
ended June 30, 1997 attached as Exhibit D hereto.
"Memorandum" means collectively: (i) the Prospectus, (ii) the
Confidential Disclosure Statement, (iii) the Company's Form 8-
K filings dated July 3, 1997 and July 21, 1997, (iv) the
Company's Form 10-QSB for the quarter ended March 31, 1997 (as
amended by the Form 10-QSB/A filed with the Commission on July
8, 1997), and (v) the June 30 Financial Statements. Any
reference to the Memorandum shall be deemed to include all
amendments and supplements thereto and any documents filed
under the Exchange Act and the rules and regulations of the
Commission thereunder.
"Prior Debenture" means the Company's 10% Convertible
Debenture Due 2006 issued on March 25, 1997 to the Purchaser.
"Prior Notes" means the Company's 10% Convertible Notes Due
2006 issued on August 12, 1996.
"Prospectus" means the Prospectus dated June 2, 1997 with
respect to the Prior Notes.
- -----------------------------------------------------------------
Purchase Agreement - Page 2
<PAGE>
"Registration Rights Agreement" means the Registration Rights
Agreement dated as of March 25, 1997 between the Company and
Purchaser, as amended by this Agreement.
"Subsidiaries" means Long Distance Network, Inc., a Texas
corporation, U.S. Communications, Inc., a Texas corporation,
AddTel Communications, Inc., a California corporation, and
North American Telecommunications Corporation, a Texas
corporation.
The terms subsequently defined in this Agreement shall have the
respective meanings assigned to them herein and shall include the
singular as well as the plural.
2. PURCHASE AND SALE OF DEBENTURE; DELIVERY AND ACCEPTANCE
OF THE ALLONGE. On the basis of the representations, warranties,
agreements and covenants herein contained and subject to the terms
and conditions set forth herein, at the Closing the Company agrees
to issue and sell to the Purchaser, and the Purchaser agrees to
purchase from the Company, the Debenture at a purchase price of
$3,500,000 to be paid by wire transfer in immediately available
funds. Additionally, at the Closing, the Company agrees to amend
certain of the terms and provisions of the Prior Debenture through
delivery to the Purchaser of the Allonge and the Purchaser agrees
to accept the Allonge as evidence of the amendments made thereto.
The Closing shall be held on August 13, 1997 at 10:00 a.m., New
York time, at the offices of Reboul, MacMurray, Hewitt, Maynard &
Kristol, 45 Rockefeller Plaza, New York, New York 10111 or at such
other place and time as may be mutually agreed to by the Company
and the Purchaser. At the Closing, the Company will execute and
deliver this Agreement, the Debenture and the Allonge to the
Purchaser against payment of the aggregate purchase price of the
Debenture specified in SECTION 2 hereof by wire transfer of
immediately available funds, and execution by the Purchaser of this
Agreement and the Allonge. The Purchaser and its transferees of the
Prior Debenture and the Debenture will be entitled to the benefits
of the Registration Rights Agreement pursuant to which the Company
has granted, among other things, certain piggyback registration
rights with respect to certain registration statements filed by the
Company registering the shares of Common Stock issuable upon
conversion of the Prior Debenture and the Debenture under the Act.
3. EXPENSES. The Company shall pay all expenses of the
transactions contemplated by this Agreement, and shall pay or
reimburse the Purchaser for all costs and expenses incurred by the
Purchaser in connection with the preparation, execution, delivery
of this Agreement, including without limitation, the fees, expenses
and disbursements of counsel to the Purchaser, provided such fees,
expenses and disbursements do not exceed $5,000.
4. THE SECURITIES.
(a) THE DEBENTURE. The Debenture in the principal
amount of $5,000,000 shall be in the form of EXHIBIT C hereto.
The Debenture will be convertible at the holder's option into
shares of Common Stock at a conversion price of $1.50 per
share, subject to adjustment in certain circumstances.
(b) THE ALLONGE. The Allonge to the Prior Debenture
shall be in the form of EXHIBIT A hereto. The Allonge shall
(i) amend the initial conversion price applicable to the Prior
Debenture to $1.50 per share, subject to adjustment in certain
circumstances, (ii) provide
- -----------------------------------------------------------------
Purchase Agreement - Page 3
<PAGE>
for an adjustment to the then applicable conversion price
should the Company sell its shares of Common Stock or
derivative securities exchangeable, convertible or exercisable
into Common Stock to certain restricted purchasers for
aggregate consideration less than the conversion price
applicable to the Prior Debenture and (iii) provide a choice
of forum clause to the Prior Debenture selecting New York as
the venue of choice between the parties.
5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The
Company represents and warrants to the Purchaser that:
(a) The Memorandum does not contain any untrue statement
of a material fact or omitted or omits to state a material
fact necessary to make the statements therein, in the light of
the circumstances under which they were made, not misleading.
(b) The Incorporated Documents heretofore filed were
filed in a timely manner and, when they were filed (or, if any
amendment with respect to any such document was filed, when
such amendment was filed), conformed in all material respects
to the requirements of the Exchange Act and did not contain an
untrue statement of a material fact or omit to state a
material fact necessary to make the statements therein, in the
light of the circumstances under which they were made, not
misleading; and any further Incorporated Documents will, when
so filed, be filed in a timely manner and conform in all
material respects to the requirements of the Exchange Act and
will not contain an untrue statement of a material fact or
omit to state a material fact necessary to make the statements
therein, in the light of the circumstances under which they
were made, not misleading.
(c) The Company has 50,000,000 shares of Common Stock
authorized, 15,668,835 of which were issued and outstanding as
of August 11, 1997; the Company has 15,000,000 shares of
Preferred Stock authorized, of which the Company has
designated 250,000 shares as Series A Cumulative Convertible
Preferred Stock ("Series A Preferred Stock"), which, as of the
date hereof, 180,000 shares are outstanding; all of the
outstanding shares of capital stock of the Company and each of
the Subsidiaries have been duly authorized and validly issued,
are fully paid and nonassessable and were not issued in
violation of any preemptive or similar rights; all of the
outstanding shares of capital stock of the Subsidiaries are
owned, directly or indirectly, by the Company, free and clear
of all liens, encumbrances and claims or restrictions on
transferability (other than those imposed by the Act and the
securities or "Blue Sky" laws of certain jurisdictions) or
voting, other than the security interests in favor of Greyrock
Business Credit. Except for the Subsidiaries (or other
subsidiaries of the Company which are not material to the
business of the Company) or as disclosed in the Memorandum,
the Company does not own, directly or indirectly, any shares
of capital stock or any other equity or long-term debt
securities or have any equity interest in any corporation,
partnership, joint venture or other entity.
(d) The shares of Common Stock issuable upon conversion
of the Debenture have been duly authorized for issuance upon
conversion of the Debenture and duly reserved for such
issuance and, when issued upon such conversion in accordance
with the terms of the
- -----------------------------------------------------------------
Purchase Agreement - Page 4
<PAGE>
Debenture, will have been validly issued and will be fully
paid and nonassessable, and the issuance of such shares of
Common Stock is not subject to any preemptive or similar
rights.
(e) Each of the Company and the Subsidiaries is duly
incorporated, validly existing and in good standing under the
laws of its respective jurisdiction of incorporation and has
all requisite corporate power and corporate authority to own
its properties and conduct its business as now conducted and
as described in the Memorandum; each of the Company and the
Subsidiaries is duly qualified to do business as a foreign
corporation in good standing in all other jurisdictions where
the ownership or leasing of its properties or the conduct of
its business requires such qualification, except where the
failure to be so qualified would not, individually or in the
aggregate, have a material adverse effect on the business,
financial condition, prospects as described in the Memorandum
or results of operations of the Company and the Subsidiaries,
taken as a whole (any such event, a "Material Adverse
Effect").
(f) The Company has all requisite corporate power and
corporate authority to execute, deliver and perform its
obligations under the Debenture. The Debenture has been duly
and validly authorized by the Company and, when executed by
the Company and when issued and delivered to and paid for by
the Purchaser in accordance with the terms of this Agreement,
will constitute valid and legally binding obligations of the
Company, enforceable against the Company in accordance with
its terms, except that (A) the enforcement thereof may be
subject to (i) bankruptcy, insolvency, fraudulent conveyance,
reorganization, moratorium or other similar laws now or
hereafter in effect relating to creditors' rights generally,
and (ii) general principles of equity and the discretion of
the court before which any proceeding therefor may be brought
and (B) any rights to indemnity or contribution thereunder may
be limited by federal and state securities laws and public
policy considerations.
(g) The Company has all requisite corporate power and
authority to execute, deliver and perform its obligations
under the Registration Rights Agreement. The Registration
Rights Agreement has been duly and validly authorized by the
Company and, when this Agreement is executed and delivered by
the Company, will continue to constitute a valid and legally
binding agreement of the Company enforceable against the
Company in accordance with its terms, except that (A) the
enforcement thereof may be subject to (i) bankruptcy,
insolvency, fraudulent conveyance, reorganization, moratorium
or other similar laws now or hereafter in effect relating to
creditors' rights generally and (ii) general principles of
equity and the discretion of the court before which any
proceeding therefor may be brought and (B) any rights to
indemnity or contribution thereunder may be limited by federal
and state securities laws and public policy considerations.
(h) The Company has all requisite corporate power and
authority to execute, deliver and perform its obligations
under this Agreement and to consummate the transactions
contemplated hereby. This Agreement and the consummation by
the Company of the transactions contemplated hereby have been
duly and validly authorized by the Company. This Agreement
has been duly executed and delivered by the Company.
- -----------------------------------------------------------------
Purchase Agreement - Page 5
<PAGE>
(i) Assuming the accuracy of the Purchaser's
representations in Section 6, no consent, approval,
authorization or order of any court or governmental agency or
body, or third party is required for the issuance and sale by
the Company of the Debenture to the Purchaser, the issuance of
shares of Common Stock upon conversion of the Debenture or the
consummation by the Company of the other transactions
contemplated hereby, except such as have been obtained and
such as may be required under state securities or "Blue Sky"
laws in connection with the purchase and resale of the
Debenture by the Purchaser. None of the Company or the
Subsidiaries is (i) in violation of its certificate of
incorporation or bylaws (or similar organizational document),
(ii) except as disclosed in the Memorandum, in breach or
violation of any statute, judgment, decree, order, rule or
regulation applicable to any of them or any of their
respective properties or assets, except for any such breach or
violation which would not, individually or in the aggregate,
have a Material Adverse Effect, or (iii) except as disclosed
in the Memorandum, in breach of or default under (nor has any
event occurred which, with notice or passage of time or both,
would constitute a default under) or in violation of any of
the terms or provisions of any indenture, mortgage, deed of
trust, loan agreement, note, lease, license, franchise
agreement, permit, certificate, contract or other agreement or
instrument to which any of them is a party or to which any of
them or their respective properties or assets is subject
(collectively, "Contracts"), except for any such breach,
default, violation or event which would not, individually or
in the aggregate, have a Material Adverse Effect.
(j) Neither the execution, delivery or performance by
the Company of this Agreement or the Registration Rights
Agreement nor the consummation by the Company of the
transactions contemplated hereby and thereby (including,
without limitation, the issuance and sale of the Debenture to
the Purchaser and the issuance of shares of Common Stock upon
conversion of the Debenture) will conflict with or constitute
or result in a breach of or a default under (or an event which
with notice or passage of time or both would constitute a
default under) or violation of any of (i) the terms or
provisions of any Contract, except for any such conflict,
breach, violation, default or event which would not,
individually or in the aggregate, have a Material Adverse
Effect, (ii) the certificate of incorporation or bylaws (or
similar organizational document) of the Company, or (iii)
(assuming compliance with all applicable state securities or
"Blue Sky" laws and assuming the accuracy of the
representations and warranties of the Purchaser in Section 6
hereof) any statute, judgment, decree, order, rule or
regulation applicable to the Company or any of its properties
or assets, except for any such conflict, breach or violation
which would not, individually or in the aggregate, have a
Material Adverse Effect.
(k) The audited consolidated financial statements of the
Company and the Subsidiaries included in the Prospectus and
the June 30 Financial Statements present fairly in all
material respects the financial position and results of
operations of the Company and the Subsidiaries at the dates
and for the periods to which they relate and have been
prepared in accordance with generally accepted accounting
principles applied on a consistent basis ("GAAP"), except as
otherwise stated therein and except that the June 30 Financial
Statements do not include a cash flow statement or footnote
presentations required by GAAP. Price Waterhouse LLP is an
independent public accounting firm within the meaning of the
Act and
- -----------------------------------------------------------------
Purchase Agreement - Page 6
<PAGE>
the rules and regulations promulgated thereunder. The
Purchaser acknowledges that the June 30 Financial Statements
may differ in certain non-material respects from the
corresponding financial statements to be included in the
Company's Form 10-QSB for the quarter ended June 30, 1997.
(l) The Allonge has been duly and validly authorized by
the Company and, when executed and delivered by the Company
and attached to the Prior Debenture, will constitute a valid
and legally binding agreement of the Company enforceable
against the Company in accordance with its terms, except that
(A) the enforcement thereof may be subject to (i) bankruptcy,
insolvency, fraudulent conveyance, reorganization, moratorium
or other similar laws now or hereafter in effect relating to
creditors' rights generally, and (ii) general principles of
equity and the discretion of the court before which any
proceeding therefor may be brought and (B) any rights to
indemnity or contribution thereunder may be limited by federal
or state securities laws and public policy considerations..
(m) Except as set forth in the Memorandum, there is not
pending or, to the knowledge of the Company, threatened any
action, suit, proceeding, inquiry or investigation to which
the Company or any of the Subsidiaries is a party, or to which
the property or assets of the Company or any of the
Subsidiaries are subject, before or brought by any court,
arbitrator or governmental agency or body which, if determined
adversely to the Company or any of the Subsidiaries, would,
individually or in the aggregate, have a Material Adverse
Effect or which seeks to restrain, enjoin, prevent the
consummation of or otherwise challenge the issuance or sale of
the Debenture to be sold hereunder or the consummation of the
other transactions described in the Memorandum.
(n) Each of the Company and the Subsidiaries possesses
all licenses, permits, certificates, consents, orders,
approvals and other authorizations from, and has made all
declarations and filings with, all federal, state, local and
other governmental authorities, all self-regulatory
organizations and all courts and other tribunals, presently
required or necessary to own or lease, as the case may be, and
to operate its respective properties and to carry on its
respective businesses as now conducted as set forth in the
Memorandum ("Permits"), except where the failure to obtain
such Permits would not, individually or in the aggregate, have
a Material Adverse Effect; each of the Company and the
Subsidiaries has fulfilled and performed all of its
obligations with respect to such Permits except where the
failure to perform such obligations would not, individually or
in the aggregate, have a Material Adverse Effect; no event has
occurred which allows, or after notice or lapse of time would
allow, revocation or termination thereof or results in any
other material impairment of the rights of the holder of any
such Permit except where such revocation or modification would
not, individually or in the aggregate, have a Material Adverse
Effect; and none of the Company or the Subsidiaries has
received any notice of any proceeding relating to revocation
or modification of any such Permit, except as described in the
Memorandum or except where such revocation or modification
would not, individually or in the aggregate, have a Material
Adverse Effect.
(o) Since June 30, 1997, except as described in the
Memorandum, (i) none of the Company or the Subsidiaries has
incurred any liabilities or obligations, direct or contingent,
or
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Purchase Agreement - Page 7
<PAGE>
entered into or agreed to enter into any transactions or
contracts (written or oral) not in the ordinary course of
business which liabilities, obligations, transactions or
contracts would, individually or in the aggregate, be material
to the business, financial condition, prospects as described
in the Memorandum or results of operations of the Companies
and its Subsidiaries, taken as a whole, (ii) none of the
Company or the Subsidiaries has purchased any of its
outstanding capital stock, nor declared, paid or otherwise
made any dividend or distribution of any kind on its capital
stock (other than with respect to any of such Subsidiaries),
the purchase of, or dividend or distribution on, capital stock
owned by the Company and other than (a) the repurchase of
shares of Common Stock pursuant to the provisions of employee
and incentive stock option plans and the related agreements
thereunder and (b) the accrual of in-kind dividends to
holders of the Company's Series A Preferred Stock, and (iii)
there shall not have been any change in the capital stock or
long-term indebtedness of the Company or the Subsidiaries.
(p) Each of the Company and the Subsidiaries has filed
all necessary federal, state and foreign income and franchise
tax returns, except where the failure to so file such returns
would not, individually or in the aggregate, have a Material
Adverse Effect, and has paid all taxes shown as due thereon;
and other than tax deficiencies which the Company or any
Subsidiary is contesting in good faith and for which the
Company or such Subsidiary has provided adequate reserves,
there is no tax deficiency that has been asserted against the
Company or any of the Subsidiaries that would have,
individually or in the aggregate, a Material Adverse Effect.
(q) None of the Company, the Subsidiaries or any agent
acting on their behalf has taken or will take any action that
might cause this Agreement or the sale of the Debenture to
violate Regulation G, T, U or X of the Board of Governors of
the Federal Reserve System, in each case as in effect, or as
the same may hereafter be in effect, on the Closing Date.
(r) Each of the Company and the Subsidiaries has good
and marketable title to all real property and good title to
all personal property described in the Memorandum as being
owned by it and good and marketable title to a leasehold
estate in the real and personal property described in the
Memorandum as being leased by it free and clear of all liens,
charges, encumbrances or restrictions (other than Permitted
Liens (as defined in the Debenture)), except as described in
the Memorandum or to the extent the failure to have such title
or the existence of such liens, charges, encumbrances or
restrictions would not, individually or in the aggregate, have
a Material Adverse Effect. Except as set forth in the
Memorandum, all leases, contracts and agreements to which the
Company or any of the Subsidiaries is a party or by which any
of them is bound are valid and enforceable against the Company
or such Subsidiary, and, to the knowledge of the Company, are
valid and enforceable against the other party or parties
thereto and are in full force and effect with only such
exceptions as would not, individually or in the aggregate,
have a Material Adverse Effect and except that (A) the
enforcement thereof may be subject to (i) bankruptcy,
insolvency, fraudulent conveyance, reorganization, moratorium
or other similar laws now or hereafter in effect relating to
creditors' rights generally and (ii) general principles of
equity and the discretion of the court before which any
proceeding therefor may be brought and (B) any rights to
indemnity or contribution
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Purchase Agreement - Page 8
<PAGE>
thereunder may be limited by federal and state securities laws
and public policy considerations. The Company and the
Subsidiaries own or possess adequate licenses or other rights
to use all patents, trademarks, service marks, trade names,
copyrights and know-how necessary to conduct the businesses
now operated by them as described in the Memorandum, and none
of the Company or the Subsidiaries has received any notice of
infringement of or conflict with (or knows of any such
infringement of or conflict with) asserted rights of others
with respect to any patents, trademarks, service marks, trade
names, copyrights or know-how which, if such assertion of
infringement or conflict were sustained, would have a Material
Adverse Effect.
(s) There are no legal or governmental proceedings
involving or affecting the Company or any Subsidiary or any of
their respective properties or assets which would be required
to be described in a prospectus pursuant to the Act that are
not described in the Memorandum, nor are there any material
contracts or other documents which would be required to be
described in a prospectus pursuant to the Act that are not
described in the Memorandum.
(t) Except as would not, individually or in the
aggregate, have a Material Adverse Effect (A) each of the
Company and the Subsidiaries is in compliance with and not
subject to liability under applicable Environmental Laws (as
defined below), (B) each of the Company and the Subsidiaries
has made all filings and provided all notices required under
any applicable Environmental Law, and has and is in compliance
with all Permits required under any applicable Environmental
Laws and each of them is in full force and effect, (C) there
is no civil, criminal or administrative action, suit, demand,
claim, hearing, notice of violation, investigation,
proceeding, notice or demand letter or request for information
pending or, to the knowledge of the Company or any of the
Subsidiaries, threatened against the Company or any of the
Subsidiaries under any Environmental Law, (D) no lien, charge,
encumbrance or restriction has been recorded under any
Environmental Law with respect to any assets, facility or
property owned, operated, leased or controlled by the Company
or any of the Subsidiaries, (E) none of the Company or the
Subsidiaries has received notice that it has been identified
as a potentially responsible party under the Comprehensive
Environmental Response, Compensation and Liability Act of
1980, as amended ("CERCLA"), or any comparable state law, (F)
no property or facility of the Company or any of the
Subsidiaries is (i) listed or proposed for listing on the
National Priorities List under CERCLA or is (ii) listed in the
Comprehensive Environmental Response, Compensation and
Liability Information System List promulgated pursuant to
CERCLA, or on any comparable list maintained by any state or
local governmental authority.
For purposes of this Agreement, "Environmental Laws" means the
common law and all applicable federal, state and local laws or
regulations, codes, orders, decrees, judgments or injunctions
issued, promulgated, approved or entered thereunder, relating
to pollution or protection of public or employee health and
safety or the environment, including, without limitation, laws
relating to (i) emissions, discharges, releases or threatened
releases of hazardous materials into the environment
(including, without limitation, ambient air, surface water,
ground water, land surface or subsurface strata), (ii) the
manufacture, processing, distribution, use, generation,
treatment, storage, disposal, transport or handling of
hazardous
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Purchase Agreement - Page 9
<PAGE>
materials, and (iii) underground and above ground storage
tanks and related piping, and emissions, discharges, releases
or threatened releases therefrom.
(u) Other than set forth in the Memorandum, there is no
strike, labor dispute, slowdown or work stoppage with the
employees of the Company or any of the Subsidiaries which is
pending or, to the knowledge of the Company or any of the
Subsidiaries, threatened.
(v) Each of the Company and the Subsidiaries has in
effect, with financially sound and reputable insurers,
insurance with respect to its business and properties and the
business and properties of its Subsidiaries against loss or
damage of the kind customarily insured against by corporations
of established reputation engaged in the same or similar
businesses and similarly situated, of such type and in such
amounts as are customarily carried under similar circumstances
by such other corporations.
(w) None of the Company or the Subsidiaries has any
liability for any prohibited transaction or funding deficiency
or any complete or partial withdrawal liability with respect
to any pension, profit sharing or other plan which is subject
to the Employee Retirement Income Security Act of 1974, as
amended ("ERISA"), to which the Company or any of the
Subsidiaries makes or ever has made a contribution and in
which any employee of the Company or of any Subsidiary is or
has ever been a participant. With respect to such plans, the
Company and each Subsidiary is in compliance in all material
respects with all applicable provisions of ERISA.
(x) The Company and the Subsidiaries, taken as a whole,
(i) makes and keeps accurate books and records and (ii)
maintains internal accounting controls which provide
reasonable assurance that (A) transactions are executed in
accordance with management's authorization, (B) transactions
are recorded as necessary to permit preparation of the
Company's financial statements and to maintain accountability
for its assets, (C) access to assets is permitted only in
accordance with management's authorization and (D) the
reported accountability for assets is compared with existing
assets at reasonable intervals.
(y) None of the Company or the Subsidiaries will be an
"investment company" or "promoter" or "principal underwriter"
for an "investment company," as such terms are defined in the
Investment Company Act of 1940, as amended, and the rules and
regulations thereunder.
(z) Immediately after the consummation of the
transactions contemplated by this Agreement and resolution of
the payment terms and/or disputed amounts satisfactory to the
Company with respect to past due invoices of WorldCom, Inc.
and NTS Communications, Inc., MCI Communications, Inc. and
other long line and local exchange carriers aggregating
approximately $5.2 million as of the date hereof, the fair
value and present fair saleable value of the assets of the
Company (on a consolidated basis) will exceed the sum of its
stated liabilities and identified contingent liabilities; the
Company (on a consolidated basis) is not, nor will the Company
(on a consolidated basis) be, after giving effect to the
execution, delivery and performance of this Agreement and the
consummation of the transactions contemplated hereby, (a) left
with unreasonably small capital with which to carry on its
business as it is
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Purchase Agreement - Page 10
<PAGE>
proposed to be conducted, (b) unable to pay any liability on
a claim as it becomes due or (c) otherwise insolvent. For the
purposes of this paragraph, "fair value" means the amount at
which an entity's aggregate assets would change hands between
a willing buyer and a willing seller, each having reasonable
knowledge of the relevant facts, with neither being under any
compulsion to act, with equity to both, and "present fair
saleable value" means the amount that may be realized if an
entity's aggregate assets are sold with reasonable promptness
in an arm's-length transaction under present conditions for
the sale of ongoing comparable business enterprises.
(aa) None of the Company, the Subsidiaries or any of
their respective Affiliates (as defined in Rule 501(b) of
Regulation D under the Act) has directly, or through any
agent, (i) sold, offered for sale, solicited offers to buy or
otherwise negotiated in respect of, any "security" (as defined
in the Act) which is or could be integrated with the sale of
the Debenture in a manner that would require the registration
under the Act of the Debenture or (ii) engaged in any form of
general solicitation or general advertising (as those terms
are used in Regulation D under the Act) in connection with the
offering of the Debenture or in any manner involving a public
offering within the meaning of Section 4(2) of the Act.
(ab) [Intentionally left blank]
(ac) None of the Company or the Subsidiaries has taken,
nor will any of them take, directly or indirectly, any action
designed to, or that might reasonably be expected to, cause or
result in stabilization or manipulation of the price of the
Common Stock.
6. REPRESENTATIONS AND WARRANTIES OF PURCHASER. The Purchaser
represents and warrants that:
(a) The Purchaser represents and warrants that it is an
Accredited Investor, as such term is defined in Regulation D
promulgated under the Act. Furthermore, as a condition
precedent to the Company's obligations to consummate the
transactions contemplated hereby, the Purchaser shall execute
that representation letter attached as Exhibit E hereto. The
Purchaser agrees with the Company that (i) it has not and will
not solicit offers for, or offer or sell, the Debenture by any
form of general solicitation or general advertising (as those
terms are used in Regulation D under the Act) or in any manner
involving a public offering within the meaning of Section 4(2)
of the Act; and (ii) it has and will solicit offers for the
Debenture only from, and will offer the Debenture only (A) in
the case of offers inside the United States, to a limited
number of other institutional investors reasonably believed by
the Purchaser to be Accredited Investors that, prior to their
purchase of the Debenture, deliver to the Purchaser a letter
containing the representations and agreements substantially
similar to those contained in Exhibit E hereto, (B) in the
case of offers outside the United States, to persons other
than U.S. persons ("foreign purchasers"), which term shall
include dealers or other professional fiduciaries in the
United States acting on a discretionary basis for foreign
beneficial owners (other than an estate or trust)); provided,
however, that, in the case of this clause (B), in purchasing
such Debenture such persons are deemed to have represented and
agreed as provided under the caption "Transfer Restrictions"
contained in the Confidential Disclosure
- -----------------------------------------------------------------
Purchase Agreement - Page 11
<PAGE>
Statement or (C) in transactions otherwise exempt or excluded
from the registration provisions of the Act.
(b) The Purchaser represents and warrants that it is the
sole and exclusive owner of the Prior Debenture and, as such,
that it consents to the amendments to the Prior Debenture
contained in the Allonge.
7. CONDITIONS OF PURCHASER'S OBLIGATIONS. The Purchaser's
obligation to purchase and pay for the Debenture is subject to the
satisfaction or waiver, prior to or at the Closing, of each of the
following conditions:
(a) On the Closing Date, the Purchaser shall have
received the opinion, dated as of such Closing Date and
addressed to the Purchaser, of Arter & Hadden, counsel for the
Company, in form and substance reasonably satisfactory to
counsel for the Purchaser.
(b) The representations and warranties of the Company
contained in this Agreement shall be true and correct on and
as of the date hereof and on and as of the Closing Date as if
made on and as of the Closing Date; the statements of the
Company's officers made pursuant to any certificate delivered
in accordance with the provisions hereof shall be true and
correct on and as of the date made and on and as of the
Closing Date; the Company shall have performed all covenants
and agreements and satisfied all conditions on their part to
be performed or satisfied hereunder at or prior to the Closing
Date; and, except as described in the Memorandum (exclusive of
any amendment or supplement thereto after the date hereof),
subsequent to the date of the most recent financial statements
in such Memorandum, there shall have been no event or
development, and no information shall have become known, that,
individually or in the aggregate, has or would be reasonably
likely to have a Material Adverse Effect.
(c) The sale of the Debenture hereunder shall not be
enjoined (temporarily or permanently) on the Closing Date.
(d) Subsequent to the date of the most recent financial
statements in the Memorandum (exclusive of any amendment or
supplement thereto after the date hereof), none of the Company
or any of the Subsidiaries shall have sustained any loss or
interference with respect to its business or properties from
fire, flood, hurricane, accident or other calamity, whether or
not covered by insurance, or from any strike, labor dispute,
slow down or work stoppage or from any legal or governmental
proceeding, order or decree, which loss or interference,
individually or in the aggregate, has or would be reasonably
likely to have a Material Adverse Effect.
(e) The Purchaser shall have received a certificate of
the Company, dated the Closing Date, signed on behalf of the
Company by its Chairman of the Board, President or any Vice
President and the Chief Financial Officer, to the effect that:
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Purchase Agreement - Page 12
<PAGE>
(i) The representations and warranties of the
Company contained in this Agreement are true and correct
on and as of the date hereof and on and as of the Closing
Date, and the Company has performed all covenants and
agreements and satisfied all conditions on its part to be
performed or satisfied hereunder at or prior to the
Closing Date;
(ii) At the Closing Date, since the date hereof or
since the date of the most recent financial statements in
the Memorandum (exclusive of any amendment or supplement
thereto after the date hereof), except as described in
the Memorandum no event or development has occurred, and
no information has become known, that, individually or in
the aggregate, has or would be reasonably likely to have
a Material Adverse Effect; and
(iii) The sale of the Debenture hereunder has
not been enjoined (temporarily or permanently).
(f) On the Closing Date, the Purchaser shall have
received the Debenture in the form of Exhibit C hereto and the
Allonge in the form of Exhibit A hereto, in each case,
executed by the Company and such instrument shall be in full
force and effect at all times after the Closing Date.
On or before the Closing Date, the Purchaser and counsel for
the Purchaser shall have received such further documents, opinions,
certificates, letters and schedules or instruments relating to the
business, corporate, legal and financial affairs of the Company and
the Subsidiaries as they shall have heretofore reasonably requested
from the Company.
All such documents, opinions, certificates, letters, schedules
or instruments delivered pursuant to this Agreement will comply
with the provisions hereof only if they are reasonably satisfactory
in all material respects to the Purchaser and counsel for the
Purchaser. The Company shall furnish to the Purchaser such
conformed copies of such documents, opinions, certificates,
letters, schedules and instruments in such quantities as the
Purchaser shall reasonably request.
8. COVENANTS OF THE COMPANY. The Company covenants and
agrees with the Purchaser that:
(a) The Company will cooperate with the Purchaser in
attempting to arrange for the qualification of the shares of
Common Stock issuable upon conversion of the Debenture for
offering and sale under the securities or "Blue Sky" laws of
such jurisdictions as the Purchaser may designate and will
continue such qualifications in effect for as long as may be
necessary to complete the resale of the underlying shares of
Common Stock; provided, however, that in connection therewith,
the Company shall not be required to qualify as a foreign
corporation or to execute a general consent to service of
process in any jurisdiction or subject itself to taxation in
excess of a nominal dollar amount in any such jurisdiction
where it is not then so subject.
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Purchase Agreement - Page 13
<PAGE>
(b) The Company will apply the net proceeds from the
sale of the Debenture as set forth under "Use of Proceeds" in
the Confidential Disclosure Statement comprising a part of the
Memorandum.
(c) The Company will give the Purchaser prompt written
notice of any amendment to Sections 5.01 through 5.12 of the
Indenture. The Company will agree to make a substantially
similar change in any conforming section contained in the
Debenture as a result of such amendment to the Indenture to
the extent requested by the Purchaser.
(d) None of the Company or any of its Affiliates will
sell, offer for sale or solicit offers to buy or otherwise
negotiate in respect of any "security" (as defined in the Act)
which could be integrated with the sale of the Debenture in a
manner which would require the registration under the Act of
the Debenture.
(e) The Company will not, and will not permit any of the
Subsidiaries to, engage in any form of general solicitation or
general advertising (as those terms are used in Regulation D
under the Act) in connection with the offering of the
Debenture or in any manner involving a public offering within
the meaning of Section 4(2) of the Act.
(f) For so long as the Debentures remain outstanding,
the Company will make available at its expense, upon request,
to any holder of such Debentures and any prospective
purchasers thereof, the information specified in Rule
144A(d)(4) under the Act, unless the Company is then subject
to Section 13 or 15(d) of the Exchange Act.
(g) The Company will undertake whatever filings or other
steps are necessary to list the shares of Common Stock
issuable upon conversion of the Debentures on the Nasdaq
SmallCap Market, to the extent the shares of the Company's
Common Stock are then eligible for listing or quotation
thereon.
(h) As a post-closing matter only, and not as a
condition precedent or condition subsequent to the
consummation of the transactions contemplated hereby or the
performance of any party's performance hereunder, the Company
agrees that it will make application for good standing (tax-
status) certificates of the following entities in the
following jurisdictions (collectively, the "Certificates"):
Name Jurisdiction
--------------------------- ------------
SA Telecommunications, Inc. Delaware, Texas (foreign)
U.S. Communications, Inc. Texas
AddTel Communications, Inc. California
Long Distance Network, Inc. Texas
Southwest Long Distance Network, Inc. Arkansas
Uniquest Communications, Inc. Texas
The Company agrees to provide the Certificates to the
Purchaser if and when received.
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Purchase Agreement - Page 14
<PAGE>
(i) The Company shall promptly advance the appropriate
amounts from the purchase price paid hereunder to the Trustee
under the Indenture for payment of interest on the Prior Notes
due on August 15, 1997.
9. The Company and Purchaser hereby agree that the
Registration Rights Agreement shall be automatically amended on the
Closing Date as follows:
(a) A new paragraph to the Registration Rights Agreement
shall be added as the third introductory paragraph thereof,
which such paragraph shall read, in its entirety, as follows:
This Agreement is amended as of August 13, 1997 pursuant
to the terms of that Purchase Agreement by and between
the Company and the Purchaser dated as of August 13, 1997
(the "August Purchase Agreement"), which provides for,
among other things, (1) the issuance by the Company of an
Allonge to the Debenture to, among other things, modify
the conversion price applicable to the Debenture and (2)
the sale by the Company to the Purchaser of an additional
$5,000,000 aggregate principal amount of the Company's
10% Convertible Debentures Due 2006 (the "August
Debenture.") In order to induce the Purchaser to enter
into the August Purchase Agreement, the Company has
agreed to modify the registration rights set forth in
this Agreement for the benefit of the Purchaser and its
direct and indirect transferees to cover the shares of
Common Stock acquirable upon conversion of the August
Debenture. The modification of this Agreement is a
condition to the obligation of the Purchaser to purchase
the August Debenture under the August Purchase Agreement.
(b) The definition of "Agreement" in Section 1.1 of the
Registration Rights Agreement shall be amended in its entirety
to read as follows:
"Agreement: This Agreement, as it has been amended by
the August Purchase Agreement and as it may from time to
time be amended between the Company and Purchaser in the
future."
(c) The following definitions should be added to Section
1.1 of the Registration Rights Agreement:
"August Debenture: See the third introductory paragraph
hereto.
August Purchase Agreement: See the third introductory
paragraph hereto."
(d) The definition of "Closing Date" in Section 1.1 of
the Registration Rights Agreement shall be deleted in its
entirety.
(e) The definition of "Offering Memorandum" in Section
1.1 of the Registration Rights Agreement shall be amended in
its entirety to read as follows:
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Purchase Agreement - Page 15
<PAGE>
"Offering Memorandum: Collectively, the Disclosure
Statements dated March 25, 1997 and August 13, 1997 (and
all documents delivered to Purchaser in connection with
the transactions contemplated thereby including those
documents listed in each of the first paragraphs thereof)
pursuant to which the Debenture was offered to the
Purchaser under the Purchase Agreement and the August
Debenture was offered to the Purchaser under the August
Purchase Agreement, as the case may be."
(f) The definition of "Registrable Securities" in
Section 1.1 of the Registration Rights Agreement shall be
amended in its entirety to read as follows:
"Registrable Securities: Each share of Common Stock of
the Company issuable upon conversion of either the
Debenture or the August Debenture, until each share (i)
has been effectively registered under the Securities Act
and disposed of in accordance with the Piggyback
Registration Statement covering it or (ii) is distributed
to the public pursuant to Rule 144."
(g) The first sentence of Section 2(a) of the
Registration Rights Agreement shall be replaced, in its
entirety, with the following two sentences:
Subject to Section 2(b) below, until March 25, 2000
whenever the Company proposes to register any of its
securities other than Registrable Securities under the
Securities Act (a "Piggyback Registration"), either for
the Company's own account or for the account of any of
its security holders (other than Holders in their
capacity as Holders), the Company will give prompt
written notice to all Holders of Registrable Securities
relating to the Debenture of its intention to effect such
a registration and will include in such Piggyback
Registration all Registrable Securities of Holders of
Registrable Securities relating to the Debenture with
respect to which the Company has received written
requests for inclusion therein within 20 days after
receipt of the Company's notice. Subject to Section 2(b)
below, until August 13, 2000 whenever the Company
proposes to file a Piggyback Registration, either for the
Company's own account or for the account of any of its
security holders (other than Holders in their capacity as
Holders), the Company will give prompt written notice to
all Holders of Registrable Securities relating to the
August Debenture of its intention to effect such a
registration and will include in such Piggyback
Registration all Registrable Securities of Holders of
Registrable Securities relating to the August Debenture
with respect to which the Company has received written
requests for inclusion therein within twenty days after
receipt of the Company's notice.
(h) In each of the first and second sentences of Section
2(d) of the Registration Rights Agreement, the word
"Debenture" shall be substituted by the words "Debenture or
the August Debenture."
(i) Each of the other provisions of the Registration
Rights Agreement shall continue in full force and effect and
shall be unencumbered by the terms of this Agreement.
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Purchase Agreement - Page 16
<PAGE>
10. Miscellaneous.
(a) SURVIVAL CLAUSE. The respective representations,
warranties, agreements, covenants, and other statements of the
Company, its officers and the Purchaser set forth in this
Agreement or made by or on behalf of them pursuant to this
Agreement shall remain in full force and effect, regardless of
(i) any investigation made by or on behalf of the Company, any
of its officers or directors, the Purchaser or any person who
controls the Company or the Purchaser within the meaning of
Section 15 of the Act or Section 20 of the Exchange Act and
(ii) delivery of and payment for the Debenture. The
respective agreements, covenants, and other statements set
forth in Sections 3, 10(d), 10(g) and 10(h) hereof shall
remain in full force and effect, regardless of any termination
or cancellation of this Agreement.
(b) NOTICES. All communications hereunder shall be in
writing and, if sent to the Purchaser, shall be mailed or
delivered to (i) Northstar High Total Return Fund, c/o
Northstar Investment Management, 2 Pickwick Plaza, 1st Floor,
Greenwich, Connecticut 06830; if sent to the Company, shall be
mailed or delivered to the Company at 1600 Promenade Center,
15th Floor, Richardson, Texas 75080, Attention: Lynn H.
Johnson, Esq., Vice President and General Counsel; with a copy
to Arter & Hadden, 1717 Main Street, Suite 4100, Dallas, Texas
75201, Attention: Mark S. Solomon, Esq.
All such notices and communications shall be deemed to
have been duly given: when delivered by hand, if personally
delivered; five business days after being deposited in the
mail, postage prepaid, if mailed; and one business day after
being timely delivered to a next-day air courier.
(c) SUCCESSORS. This Agreement shall inure to the
benefit of and be binding upon the Purchaser, the Company and
their respective successors and legal representatives, and
nothing expressed or mentioned in this Agreement is intended
or shall be construed to give any other person any legal or
equitable right, remedy or claim under or in respect of this
Agreement, or any provisions herein contained; this Agreement
and all conditions and provisions hereof being intended to be
and being for the sole and exclusive benefit of such persons
and for the benefit of no other person. No purchaser of
Debenture from the Purchasers will be deemed a successor
because of such purchase.
(d) APPLICABLE LAW. THE VALIDITY AND INTERPRETATION OF
THIS AGREEMENT, AND THE TERMS AND CONDITIONS SET FORTH HEREIN
SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS
OF THE STATE OF NEW YORK APPLICABLE TO CONTRACTS MADE AND TO
BE PERFORMED WHOLLY THEREIN, WITHOUT GIVING EFFECT TO ANY
PROVISIONS THEREOF RELATING TO CONFLICTS OF LAW. IT IS
SPECIFICALLY ACKNOWLEDGED BETWEEN THE PARTIES THAT A
SUBSTANTIAL PORTION OF THE NEGOTIATIONS RELATING TO, AND
ULTIMATELY RESULTING IN, THE DEBENTURE AGREEMENTS WERE
CONDUCTED BY THE PURCHASER THROUGH ITS COUNSEL IN THE STATE OF
NEW YORK. FURTHERMORE, THE PURCHASER REPRESENTS THAT IT HAS
PHYSICALLY EXECUTED THIS AGREEMENT IN THE STATE OF NEW YORK.
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Purchase Agreement - Page 17
<PAGE>
(e) COUNTERPARTS. This Agreement may be executed in two
or more counterparts, each of which shall be deemed an
original, but all of which together shall constitute one and
the same instrument.
(f) DESCRIPTIVE HEADINGS. The descriptive headings
herein have been inserted for convenience only and shall not
be deemed to limit or otherwise affect the construction of any
provisions hereof.
(g) CONFIDENTIALITY; COMPETITORS.
(i) The Purchaser acknowledges that it has
received, and may in the future receive, non-public
information regarding the Company, certain of its
subsidiaries and/or their respective businesses (the
"Confidential Information"). As such, the Purchaser
hereby agrees not to use (except for its own internal
evaluation purposes) or disclose such Confidential
Information without the prior written consent of the
Company. Confidential Information shall not include any
information which (A) has been or becomes public other
than by such Purchaser's actions or actions of such
Purchaser's directors, employees, agents or advisors in
violation of this Section, (B) becomes available to such
Purchaser on a nonconfidential basis, or (C) is known to
such Purchaser prior to being disclosed to such Purchaser
by the Company. The Purchaser hereby acknowledges that
it is aware that the United States securities laws
prohibit any person who has material non-public
information about a company from purchasing or selling
securities of such company.
(ii) The Company shall not be obligated to provide
any Confidential Information to any transferee of the
Debenture or the Prior Debenture unless and until such
transferee agrees in writing to be bound by the
provisions of this Section 10(g), which agreement shall
be a condition to any such transfer.
(iii) Notwithstanding anything to the contrary
contained in this Agreement, the Company shall not be
obligated to furnish to any Purchaser which is a
competitor or potential competitor any Confidential
Information (including any information which it would
otherwise be required to furnish to such Purchaser
pursuant to the provisions of this Agreement).
(h) The Company hereby irrevocably consents to the non-
exclusive personal jurisdiction, service of process and venue
in the federal and state courts of the State of New York for
any claim, suit or proceedings arising under this Agreement or
the documents and agreements executed in connection herewith.
[Signature Page Follows]
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Purchase Agreement - Page 18
<PAGE>
IN WITNESS WHEREOF, the Company and the Purchaser have caused
this Agreement to be executed as of the date first above written.
SA TELECOMMUNICATIONS, INC.
By: /s/ J. DAVID DARNELL
------------------------------
J. David Darnell
Vice President - Finance and
Chief Financial Officer
NORTHSTAR HIGH TOTAL RETURN
By: /s/ JEFFREY AURIGEMMA
------------------------------
Jeffrey Aurigemma
Vice President
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Purchase Agreement - Page 19
<PAGE>
EXHIBIT A TO PURCHASE AGREEMENT
ALLONGE TO 10% CONVERTIBLE DEBENTURE DUE 2006
This Allonge is attached to and is a part of that 10%
Convertible Debenture Due August 15, 2006 of SA TELECOMMUNICATIONS,
INC. (the "Company") in the principal amount of $3,800,000, payable
to Northstar High Total Return Fund, or registered assigns (the
"Debenture").
1. The Debenture, to which this Allonge is attached, shall
be amended as follows:
(a) The Debenture shall be amended to include a new
sentence to the end of Section 3.1, which such sentence shall
read, in its entirety, as follows:
"The Securities shall be designated Series 1997 A."
(b) The second paragraph of Section 6.1 of the Debenture
shall be amended to read, in its entirety, as follows:
"The initial conversion price is $1.50 per share, subject
to adjustment as provided in this Article 6."
(c) The Debenture is hereby amended to add new
paragraphs numbered 6.10A and 6.10B which such paragraphs
shall read, in their entirety, as set forth below:
6.10A ADJUSTMENT OF CONVERSION PRICE UPON
ISSUANCES TO RESTRICTED PURCHASERS. (a) If and whenever
after the date hereof the Company shall issue or sell, or
shall in accordance with Section 6.10B be deemed to have
issued or sold, any shares of Common Stock to (i) Jesup
& Lamont Capital Markets, Inc. or any party who is an
affiliate thereof or (ii) any Person who is a beneficial
owner (as such term is used in Rule 13d-3 promulgated
under the Exchange Act) of more than five percent (5%) of
the issued and outstanding shares of Common Stock of the
Company (each, a "Restricted Purchaser") for a
consideration per share (the "Adjusted Conversion Price")
less than the then existing conversion price per share
(initially, $1.50 per share) on the date which is the
earlier of the date immediately preceding (i) the date of
such issue or sale or (ii) the date of the announcement
of such issue or sale, THEN, forthwith upon such issue or
sale, the conversion price applicable to the Debenture
shall, subject to Section 6.10B, be reduced to the
Adjusted Conversion Price.
(b) Notwithstanding the provisions of this
Section 6.10A and Section 6.10B, no adjustment of the
conversion price (other than pursuant to Section
6.10B(c)) shall be required as a result of (i) the
issuance of shares of Common Stock upon conversion of the
Debenture, (ii) the issuance of Common Stock in an
underwritten public offering, (iii) the issuance of
Common Stock or derivative securities exchangeable,
exercisable or convertible into Common Stock pursuant to
the terms of the Company's Series A Cumulative
Convertible Preferred Stock ("Series A Preferred")
(PROVIDED, HOWEVER, except as set forth in subparagraph
(iv) hereof, adjustment to the conversion price shall be
applicable for all new issuances of Series A Preferred),
(iv) the payment of payment-in-kind dividends on the
Series A
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<PAGE>
Preferred, (v) the issuance of Common Stock or
Convertible Securities (as defined in Section 6.10B(g))
to Northstar High Total Return Fund or any other fund
advised by Northstar Investment Management, or (vi) the
exercise or conversion of any derivative security
outstanding on August 13, 1997 and held by any present or
past employee, officer or director of the Company.
6.10B EFFECT OF CERTAIN EVENTS ON CONVERSION
PRICE. For purposes of determining the Adjusted
Conversion Price under Section 6.10A, the following shall
be applicable:
(a) ISSUANCE OF OPTIONS. In case at any time
the Company shall in any manner grant any Options
(including Options for Convertible Securities) to a
Restricted Purchaser, and the price per share for which
Common Stock is issuable upon the exercise of such
Options or upon conversion or exchange of such
Convertible Securities
(determined by dividing (i) the total amount, if
any, received or receivable by the Company as
consideration for the granting of such Options,
plus the minimum aggregate amount of additional
consideration payable to the Company upon the
exercise of all such Options, plus, in the case of
such Options which relate to Convertible
Securities, the minimum aggregate amount of
additional consideration, if any, payable upon the
issue or sale of such Convertible Securities and
upon the conversion or exchange thereof, by (ii)
the total maximum number of shares of Common Stock
issuable upon the exercise of such Options or upon
the conversion or exchange of all such Convertible
Securities issuable upon the exercise of such
Options)
shall be less than the current conversion price
determined as of the earlier of the date immediately
preceding (i) the date of granting such Options or (ii)
the date of any announcement of the granting of such
Options, THEN the total maximum number of shares of
Common Stock issuable upon the exercise of such Options
or upon conversion or exchange of the total maximum
amount of such Convertible Securities issuable upon the
exercise of such Options shall (as of the date of grant
of such Options) be deemed to be outstanding and to have
been issued for such price per share. No adjustment of
the conversion price shall be made upon the actual issue
of such Common Stock or of such Convertible Securities
upon exercise of such Options or upon the actual issue of
such Common Stock upon conversion or exchange of such
Convertible Securities, except as otherwise provided in
Section 6.10B(c).
(b) ISSUANCE OF CONVERTIBLE SECURITIES. In
case the Company shall in any manner issue or sell any
Convertible Securities to a Restricted Purchaser, and the
price per share for which Common Stock is issuable upon
such conversion or exchange of such Convertible
Securities
(determined by dividing (i) the total amount
received or receivable by the Company as
consideration for the issue or sale of such
Convertible Securities,
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<PAGE>
plus the minimum aggregate amount of additional
consideration, if any, payable to the Company upon
the conversion or exchange thereof, by (ii) the
total maximum number of shares of Common Stock
issuable upon the conversion or exchange of all
such Convertible Securities)
shall be less than the current conversion price on the
date which is the earlier of the date immediately
preceding (i) the date of such issue or sale of
Convertible Securities or (ii) the date of the
announcement of such issue or sale of such Convertible
Securities, THEN the total maximum number of shares of
Common Stock issuable upon conversion or exchange of all
such Convertible Securities shall (as of the date of the
issue or sale of such Convertible Securities) be deemed
to be outstanding and to have been issued for such price
per share. Except as otherwise provided in Section
6.10B(c), no adjustment of the conversion price shall be
made upon the actual issue of such Common Stock upon
conversion or exchange of such Convertible Securities,
and if any such issue or sale of such Convertible
Securities is made upon exercise of any Options for which
adjustments of the conversion price have been made or are
to be made pursuant to other provisions of this Section
6.10B, no further adjustment of the conversion price
shall be made by reason of such issue or sale.
(c) CHANGE IN OPTION OR CONVERSION PRICE. If
the purchase price provided for in any Option referred to
in Section 6.10B(a), the additional consideration, if
any, payable upon conversion or exchange of any
Convertible Securities referred to in Section 6.10B(a) or
6.10B(b), or the rate at which any Convertible Securities
referred to in Section 6.10B(a) or 6.10B(b) are
convertible into or exchangeable for Common Stock, shall
change at any time (other than under or by reason of
provisions designed to protect against dilution of the
type set forth in this Section 6.10B or in Sections 6.6
through 6.10A), then the conversion price in effect at
the time of such change shall forthwith be adjusted to
the conversion price which would have been in effect at
such time had such Option or Convertible Securities still
outstanding provided for such changed purchase price,
additional consideration or conversion rate, as the case
may be, at the time initially granted, issued or sold.
(d) TREATMENT OF EXPIRED OPTIONS AND
UNEXERCISED CONVERTIBLE SECURITIES. Upon the expiration
of any Option or the termination of any right to convert
or exchange any Convertible Securities (without any
exercise of such Option or right to convert or exchange),
the Adjusted Conversion Price then in effect hereunder
shall forthwith be adjusted to the conversion price which
would have been in effect at the time of such expiration
or termination had such Option or Convertible Securities,
to the extent outstanding immediately prior to such
expiration or termination, never been issued, and the
Common Stock issuable thereunder shall no longer be
deemed to be outstanding. No increase in the conversion
price made pursuant to this paragraph (d) shall exceed
the amount of any decrease in the conversion price
effected pursuant to other provisions of this Section
6.10B in respect of such unexercised expired or
terminated Options or Convertible Securities, the purpose
of this Section 6.10B(d) being to reverse any adjustments
in the conversion price previously made pursuant to other
provisions of this Section 6.10B in respect of such
unexercised expired or terminated Options or Convertible
Securities.
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<PAGE>
(e) CALCULATION OF CONSIDERATION RECEIVED.
In case any shares of Common Stock, Options or
Convertible Securities shall be issued or sold or deemed
to have been issued or sold for cash, the consideration
received therefor shall be deemed to be the aggregate
proceeds payable to the Company therefor, prior to
deduction of any expenses incurred and any underwriting
commission or concessions paid or allowed by the Company
in connection therewith. In case any shares of Common
Stock, Options or Convertible Securities shall be issued
or sold for a consideration other than cash, the amount
of consideration other than cash received by the Company
shall be deemed to be the fair value, determined in good
faith by the Board of Directors, of such consideration
except where such consideration consists of securities,
in which case the amount of the consideration received by
the Company shall be deemed to be the current market
price thereof as of the date of receipt. In case any
shares of Common Stock, Options or Convertible Securities
shall be issued in connection with any merger in which
the Company is the surviving corporation, the amount of
consideration therefor shall be deemed to be the fair
value, determined in good faith by the Board of
Directors, of such portion of the net assets and business
of the non-surviving corporation as shall be attributable
to such Common Stock, Options or Convertible Securities,
as the case may be.
(f) HOLDERS AGREEMENTS NOT TO AMEND. It is
expressly acknowledged and agreed that neither Section
6.10A nor Section 6.10B shall be deemed to amend or
adjust the conversion price if the Company shall obtain
the written consent of the Holders of at least a majority
in aggregate principal amount of the Securities prior to
the issuance of Common Stock, Options or Convertible
Securities, as the case may be.
(g) "CONVERTIBLE SECURITIES." As used herein
"Convertible Securities" shall mean any stock or other
securities convertible into or exchangeable for Common
Stock issued after the date hereof, whether or not the
right to convert or exchange the same is immediately
exercisable.
(h) "OPTIONS." As used herein, "Options"
shall mean any rights to subscribe for or to purchase, or
any warrants or options for the purchase of, Common Stock
or Convertible Securities issued after the date hereof,
whether or not such Options are immediately exercisable.
(i) "PRIOR ADJUSTMENT TO CONVERSION PRICE. No
action, issuance or other matter covered by Section 6.10A
or Section 6.10B shall be deemed to amend or adjust the
conversion price of the Debentures if or to the extent
the same action, issuance or other matter is also covered
by Section 6.6, 6.7, 6.8, 6.9 or 6.10 and such action,
issuance or other matter shall thereupon result in the
amendment or adjustment of the then current conversion
price.
(d) The Debenture is hereby amended to add a new
paragraph numbered 12.10, which such paragraph shall read, in
its entirety, as set forth below:
12.10 CHOICE OF FORUM. The Company hereby
irrevocably consents to the non-exclusive personal
jurisdiction, service of process and venue in the federal
and
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<PAGE>
state courts of the State of New York for any claim, suit
or proceedings arising under this Agreement or the
documents and agreements executed in connection herewith.
2. Except as expressly modified herein, all other terms and
conditions of the Debenture shall remain in full force and effect.
IN WITNESS WHEREOF, the Company has duly executed this Allonge
as of the 13th day of August, 1997.
SA TELECOMMUNICATIONS, INC.
By:________________________________
J. David Darnell, Vice
President-Finance and
Chief Financial Officer
AGREED TO AND ACCEPTED
THIS 13th day of August, 1997
NORTHSTAR HIGH TOTAL RETURN FUND
By:_________________________
Jeffrey Aurigemma
<PAGE>
EXHIBIT B TO PURCHASE AGREEMENT
CONFIDENTIAL DISCLOSURE STATEMENT
<PAGE>
EXHIBIT C TO PURCHASE AGREEMENT
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED
UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD WITHIN THE
UNITED STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, U.S. PERSONS
EXCEPT PURSUANT TO REGISTRATION UNDER THE SECURITIES ACT OR AN
EXEMPTION FROM THE REGISTRATION REQUIREMENTS.
No. 1: Series 1997 B $5,000,000
August 13, 1997
SA TELECOMMUNICATIONS, INC.
10% Convertible Debenture
Due August 15, 2006
FOR VALUE RECEIVED, SA TELECOMMUNICATIONS, INC., a Delaware
corporation (the "Company"), promises to pay to NORTHSTAR HIGH
TOTAL RETURN FUND or registered assigns (the "Holder") the
principal sum of Five Million Dollars on August 15, 2006 (the
"Maturity Date") and to pay interest on the unpaid principal amount
hereof, in such amounts, at such times and on such terms and
conditions as are specified herein.
1. INTEREST.
The Company promises to pay interest on the unpaid principal amount
of this Debenture ("the Security") at the rate of Ten Percent (10%)
per annum, payable in cash, and payable in arrears until the
principal hereof is paid in full or has been converted. The Company
will pay interest semi-annually on February 15 and August 15 each
year, commencing on August 15, 1997 to Holders of Securities at the
close of business on the relevant record dates specified below:
Interest Payment Date Corresponding Record Date
--------------------- -------------------------
February 15 February 1
August 15 August 1
Interest on the Securities, or any portion thereof, will accrue
from the most recent date to which interest has been paid or, if no
interest has been paid, from August 13, 1997. Interest will be
computed on the basis of a 360-day year of twelve 30-day months.
2. METHOD OF PAYMENT.
The Company will pay interest on the Securities (except defaulted
interest) to the Persons who are registered Holders of Securities
at the close of business on the February 1 or August 1 next
preceding the interest payment date (including Securities that are
canceled after the record date and on or before the interest
payment date). Holders must surrender Securities to the Company to
<PAGE>
-2-
collect principal and any premium payments. The Company will pay
principal, premium, if any, and interest in money of the United
States that at the time of payment is legal tender for payment of
public and private debts. Interest and principal payments shall be
subject to withholding (if any) under applicable United States
Federal Internal Revenue Service Regulations.
3. REGISTERED DEBENTURES.
3.1 SERIES. This Security is one of a numbered series of
debentures having an aggregate principal amount of not more than
$5,000,000 which are identical except as to the principal amount
and date of issuance thereof and as to any restriction on the
transfer thereof in order to comply with the Securities Act of
1933, as amended (the "Securities Act"), and the regulations of the
SEC promulgated thereunder. The Securities shall be designated
Series 1997 B.
3.2 RECORD OWNERSHIP. The Company shall maintain a register
of the Holders of the Securities (the "Register") showing their
names and addresses and the serial numbers and principal amounts of
Securities issued to or transferred of record by them from time to
time. The Register may be maintained in electronic, magnetic or
other computerized form. The Company may treat the person named as
the Holder of this Security in the Register as the sole owner of
this Security. The Holder of this Security is the person
exclusively entitled to receive payments of interest on this
Security, receive notifications with respect to this Security,
convert it into Common Stock and otherwise exercise all of the
rights and powers as the absolute owner hereof.
3.3 REGISTRATION OF TRANSFER. Transfers of this Security may
be registered on the books of the Company maintained for such
purpose pursuant to Section 3.2 above (i.e., the Register);
provided, however, that the Company shall be under no obligation to
reflect a transfer of this Security unless such transfer is of an
amount equal to $100,000 or an integral multiple of $100,000.
Transfers shall be registered when this Security is presented to
the Company with a request to register the transfer hereof and the
Security is duly endorsed or accompanied by a written instrument of
transfer in the form attached as Exhibit A hereto, duly executed by
the Holder thereof or his attorney duly authorized in writing,
reasonable assurances are given that the endorsements are genuine
and effective, and the Company has received evidence satisfactory
to it that such transfer is rightful and in compliance with this
Security and all applicable laws, including tax laws and state and
federal securities laws. The Company may require payment of a sum
sufficient to cover any transfer tax or similar governmental charge
payable in connection therewith (other than such taxes or charges
payable upon transfers pursuant to Section 4.6, 5.3, 6.2 and 8.4.
When this Security is presented for transfer and duly transferred
hereunder, it shall be canceled and a new Security showing the name
of the transferee as the record holder thereof shall be issued in
lieu hereof. When this Security is presented to the Company with a
reasonable request to exchange it for an equal principal amount of
Securities of other denominations, the Company shall make such
exchange and shall cancel this Security and issue in lieu thereof
Securities having a total principal amount equal to this Security
in the denominations requested by the Holder; PROVIDED HOWEVER, no
Holder shall request that the Company exchange this Security in
denominations of less than $100,000.
3.4 RESTRICTION ON TRANSFER. The Company shall not be
required: (i) to issue, register the transfer of or exchange
Securities during a period beginning at the opening of business 15
<PAGE>
-3-
days before the day of any selection of Securities for redemption
under Section 4.2 and ending at the close of business on the day of
selection or (ii) to register the transfer or exchange of any
Security so selected for redemption in whole or in part, except the
unredeemed portion of any Security being redeemed in part.
3.5 WORN AND LOST SECURITIES. If this Security becomes worn,
defaced or mutilated but is still substantially intact and
recognizable, the Company or its agent may issue a new Security in
lieu hereof upon its surrender bearing a number not
contemporaneously outstanding. Where the Holder of this Security
claims that the Security has been lost, destroyed or wrongfully
taken, the Company shall issue a new Security in place of the
original Security bearing a number not contemporaneously
outstanding if the Holder so requests by written notice to the
Company actually received by the Company before it is notified that
the Security has been acquired by a bona fide purchaser and the
Holder has delivered to the Company an indemnity bond in such
amount and issued by such surety as the Company deems satisfactory
together with an affidavit of the Holder setting forth the facts
concerning such loss, destruction or wrongful taking and such other
information in such form with such proof or verification as the
Company may request.
3.6 SPECIAL TRANSFER PROVISIONS. The Company shall only
register the transfer of any Security if the transferee (1)
executes and delivers to the Company the Assignment Form attached
hereto and (2) provides to the Company such other information,
opinions and certifications as reasonably requested by the Company
to ensure compliance with the terms of this Security and applicable
law.
4. OPTIONAL REDEMPTION.
4.1 REDEMPTION; REDEMPTION PRICE. On and after August 15,
1999, the Company may redeem all the Securities at any time or some
of them from time to time at the following redemption prices
(expressed in percentages of principal amount), plus accrued
interest to, but not including, the redemption date, if redeemed
during the 12-month period beginning August 15 of the years
indicated below:
Year Percentage
---- ----------
1999 107.0%
2000 105.6
2001 104.2
2002 102.8
2003 101.4
2004 and thereafter 100.0
No sinking fund is provided for the Securities.
4.2 SELECTION OF SECURITIES TO BE REDEEMED. If less than all
the Securities are to be redeemed, the Company may select the
Securities to be redeemed by lot or on a pro rata basis from
Securities outstanding and not previously called for redemption or
in such manner as complies with applicable legal and securities
exchange requirements, if any. Securities selected for redemption
shall be in amounts of $1,000 or integral multiples of $1,000.
<PAGE>
-4-
4.3 NOTICE OF REDEMPTION. At least 30 days but not more than
60 days before a redemption date, the Company shall mail a notice
of redemption to each Holder whose Securities are to be redeemed.
The notice shall identify the Securities to be redeemed and
shall state:
(1) the redemption date;
(2) the redemption price;
(3) the conversion price;
(4) that Securities called for redemption may be
converted at any time before the close of business on the
tenth (10th) calendar day immediately preceding the redemption
date, or if such day is not a Business Day, then the close of
business on the next succeeding day which is a Business Day;
(5) that Holders who want to convert Securities must
satisfy the requirements set forth in Article 6 of this
Security;
(6) that Securities called for redemption must be
surrendered to the Company in order to collect the redemption
price;
(7) that interest on Securities called for redemption
ceases to accrue on and after the redemption date, and the
amount of interest accrued on the Securities called for
redemption up to but not including the redemption date; and
(8) if less than all of any Security is to be redeemed,
the principal amount of such Security to be redeemed.
4.4 EFFECT OF NOTICE OF REDEMPTION. Once notice of redemption
is mailed, Securities called for redemption, unless theretofore
converted into Common Stock pursuant to the terms of this Security,
shall become due and payable on the redemption date at the
redemption price. Upon surrender to the Company, such Securities
shall be paid at the redemption price, plus accrued interest to the
redemption date; PROVIDED, HOWEVER, that any regular semi-annual
payment of interest becoming due on the redemption date shall be
payable to the Holder of any such Security as provided herein.
4.5 EFFECT OF REDEMPTION DATE. Interest on the Securities to
be redeemed will cease to accrue on and after the applicable
redemption date, whether or not such Securities are presented for
payment. If any Security called for redemption shall not be so
paid upon surrender thereof for redemption, the principal, premium,
if any, and, to the extent lawful, accrued interest thereon shall,
until paid, bear interest from the redemption date at the rate
provided in the Securities.
<PAGE>
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4.6 Securities Redeemed in Part. Upon surrender to the
Company of a Security that is redeemed in part, the Company shall
execute for the Holder a new Security equal in principal amount to
the unredeemed portion of the Security surrendered.
5. REPURCHASE AT OPTION OF HOLDER UPON A FUNDAMENTAL CHANGE.
5.1 REPURCHASE UPON FUNDAMENTAL CHANGE. The Company covenants
and agrees that, in the event that there occurs a Fundamental
Change (as defined below), each Holder of Securities shall have the
right, at the Holder's option, to require the Company to repurchase
all of such Holder's Securities, or any portion thereof that is an
integral multiple of $1,000, on the date (the "Repurchase Date")
selected by the Company that is not less than 10 nor more than 30
days after the Final Surrender Date (as defined below), at a price
equal to the principal amount thereof, plus accrued interest to the
Repurchase Date (the "Repurchase Price").
5.2 COMPANY NOTICE. Unless the Company shall have
theretofore called for redemption all the outstanding Securities,
on or before the 30th day after the occurrence of a Fundamental
Change, the Company shall mail to all Holders of record of the
Securities (at such Holder's address appearing in the Securities
Register) a written notice (the "Company Notice") describing the
occurrence of such Fundamental Change and of the repurchase right
arising as a result thereof as well as stating the final date by
which the Securities must be surrendered for repurchase, the
conversion price then in effect, the Repurchase Date, the
repurchase price and the procedure which the Holder must follow to
elect repurchase. The Company shall deliver a copy of the Company
Notice at least once to the Dow Jones News Service or similar
business service in the United States. No failure of the Company to
give the foregoing notices or defect therein shall limit any
Holder's right to exercise a repurchase right or affect the
validity of the proceedings for the repurchase of Securities.
5.3 Exercising Repurchase Right.
(a) To elect repurchase of any Securities or portion
thereof, the Holder will be required to surrender, on or
before the Final Surrender Date (as defined below), to the
Company, such Security duly endorsed or assigned to the
Company or in blank, together with written notice of the
Holder's election to have the Company repurchase all or any
$1,000 portion of such Security specified in such notice.
Election of repurchase by a Holder shall be irrevocable.
"Final Surrender Date" shall mean the date which is, subject
to any contrary requirements of applicable law, 60 days after
the date of mailing of the Company Notice. "Repurchase Date"
shall mean the date selected by the Company for the repurchase
of the Securities that is not less than 10 and not more than
30 days after the Final Surrender Date.
(b) In the event a repurchase right shall be exercised
in accordance with the terms hereof, the Company shall pay or
cause to be paid the repurchase price in cash to the Holder on
the Repurchase Date; PROVIDED, HOWEVER, that installments of
interest that mature on or prior to the Repurchase Date shall
be payable in cash to the Holders of such Securities,
registered as such at the close of business on the relevant
record date specified herein.
<PAGE>
-6-
(c) If any Security surrendered for repurchase shall not
be so paid on the Repurchase Date, the principal amount which
is payable at maturity shall, until the repurchase price (as
calculated at the date of payment) is paid, continue to bear
interest from the Repurchase Date at the rate borne by the
Security and each such Security shall continue to remain
convertible into Common Stock until said repurchase price
shall have been paid to the Holder.
(d) Any Security which is to be repurchased only in part
shall be surrendered to the Company (with, if the Company so
requires, due endorsement by, or a written instrument of
transfer in form satisfactory to the Company, duly executed by
the holder thereof or his attorney duly authorized in
writing), and the Company shall execute and deliver to the
Holder without service charge, a new Security or Securities,
of any authorized denomination as requested by such Holder in
aggregate principal amount equal to and in exchange for the
unrepurchased portion of the principal of the Security so
surrendered.
5.4 CERTAIN DEFINITIONS. For purposes of this Article:
(a) The term "Junior Capital Stock" shall mean capital
stock of the Company that does not rank prior, as to the
payment of dividends or as to the distribution of assets upon
any voluntary or involuntary liquidation, dissolution or
winding up of the Company, to shares of capital stock of any
other class of the Company;
(b) The term "Fundamental Change" shall mean any of the
following:
(i) a "Person" or "group" (within the meaning of
Sections 13(d) and 14(d)(2) of the Exchange Act) other
than a Permitted Holder, becoming the "beneficial owner"
(as defined in Rule l3d-3 under the Exchange Act) of
Voting Shares (as defined below) of the Company entitled
to exercise more than 50% of the total voting power of
all outstanding Voting Shares of the Company (including
any Voting Shares that are not then outstanding of which
such Person or group is deemed the beneficial owner) for
purposes of Rule 13d-3; or
(ii) a change in the Board of Directors in which the
individuals who constituted the Board of Directors at the
beginning of the two-year period immediately preceding
such change (together with any other director whose
election by the Board of Directors or whose nomination
for election by the shareholders of the Company was
approved by a vote of at least a majority of the
directors then in office who either were directors at the
beginning of such period or whose election or nomination
for election was previously so approved) cease for any
reason to constitute a majority of the directors then in
office; or
(iii) any consolidation of the Company with, or
merger of the Company into, any other Person, any merger
of another Person into the Company, or any sale or
transfer of all or substantially all of the assets of the
Company to another Person in a single transaction or
series of related transactions (other than (x) a merger
which does
<PAGE>
-7-
not result in any reclassification, conversion, exchange
or cancellation of outstanding shares of Common Stock,
(y) a merger which is effected solely to change the
jurisdiction of incorporation of the Company or (z) any
consolidation with or merger of the Company into a wholly
owned subsidiary of the Company, or any sale or transfer
by the Company of all or substantially all of its assets
to one or more of its wholly owned subsidiaries, in any
one transaction or a series of transactions, provided, in
any such case, that the resulting corporation or each
such subsidiary assumes or guarantees the Company's
obligations under the Securities); PROVIDED, HOWEVER,
that a Fundamental Change shall not occur with respect to
any such transaction if either (i) the last sale price of
the Common Stock for any five Trading Days during the ten
Trading Days immediately preceding the public
announcement by the Company of such transaction is at
least equal to 105% of the conversion price in effect on
such Trading Day, (ii) the consideration in such
transaction to the holders of Common Stock consists of
cash, securities that are, or immediately upon issuance
will be, listed on a national securities exchange or
quoted on the Nasdaq National Market, or a combination of
cash and such securities, and the aggregate fair market
value of such consideration (which, in the case of such
securities, shall be equal to the average of the last
sale prices of such securities during the ten consecutive
Trading Days commencing with the sixth Trading Day
following consummation of the transaction) is at least
105% of the conversion price in effect on the date
immediately preceding the closing date of such
transaction, or (iii) in the case of a merger or
consolidation, the stockholders of the Company
immediately prior to the date of such transaction
continue to beneficially own a majority of the Voting
Shares of the surviving entity;
(c) The term "Person" shall include any syndicate
or group which would be deemed to be a "Person" under
Section 13(d)(3) of the Exchange Act as in effect on the
date of the original execution of this Indenture;
(d) The term "Voting Shares" shall mean all
outstanding shares of any class or classes (however
designated) of Junior Capital Stock entitled to vote
generally in the election of members of the Board of
Directors; and
(e) The term "Permitted Holder" means Jack W. Matz,
Jr. or his Affiliates.
5.5 COMPLIANCE WITH SECURITIES LAWS. The Company shall comply
with the requirements of Rule 13e-4 and Rule 14e-1 under the
Securities Exchange Act of 1934, as amended (the "Exchange Act")
and any other securities laws and regulations thereunder to the
extent such laws and regulations are applicable in connection with
the repurchase of Securities pursuant to this Article 5. To the
extent the provisions of any securities laws or regulations
conflict with the provisions under this Article 5, the Company
shall comply with the applicable securities laws and regulations
and shall not be deemed to have breached its obligations under this
Article 5 by virtue thereof.
<PAGE>
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6. CONVERSION.
6.1 CONVERSION PRIVILEGE. A Holder of a Security may, subject
to the terms stated herein, convert it into fully paid and non-
assessable shares of Common Stock at any time prior to the close of
Company business on August 15, 2006. If the Security is called for
redemption, the holder may convert such Security at anytime before
the close of business on the tenth (10th) calendar day immediately
preceding the redemption date, or, if such date is not a Business
Day, then the close of business on the next succeeding day which is
a Business Day. The number of shares issuable upon conversion of a
Security is determined by dividing the principal amount to be
converted by the conversion price in effect on the conversion date,
and rounding the result to the nearest 1/l00th of a share.
The initial conversion price is $1.50 per share, subject to
adjustment as provided in this Article 6.
A Holder may convert a portion of a Security if the portion is
$1,000 or a whole multiple of $1,000.
6.2 CONVERSION PROCEDURE. To convert a Security a Holder must
(1) complete and sign the conversion notice on the back of the
Security, (2) surrender the Security to the Company, (3) furnish
the endorsements and transfer documents required by the Company and
(4) pay any transfer or similar tax required. The date on which the
Holder satisfies all those requirements in respect of a Security is
the conversion date of that Security. As soon as is reasonably
practical on or after the conversion date, the Company shall
deliver a certificate for the number of full shares of Common Stock
issuable upon the conversion of that Security and a check for any
fractional share. The Person in whose name the certificate is
registered shall be treated as a shareholder of record on and after
the conversion date.
No payment will be made for accrued interest on a converted
Security (other than the payment of interest to the Holder of a
Security at the close of business on a record date pursuant to
Article 1 hereof) unless at the time of conversion such Security
has been called for redemption pursuant to Article 4 hereof, in
which case the Holder of such Security shall be entitled to
interest accrued thereon to the date of conversion. Upon
conversion, no payment or adjustment will be made for dividends or
distributions on any Common Stock issued upon conversion of any
Security.
If a Holder converts more than one Security at the same time,
the number of full shares issuable upon the conversion shall be
based on the total principal amount of the Securities converted.
Upon surrender of a Security that is converted in part, the
Company shall execute for the Holder a new Security equal in
principal amount to the unconverted portion of the Security
surrendered.
If the last day on which a Security may be converted is a
Legal Holiday in a place where the Company is located, the Security
may be surrendered to the Company on the next succeeding business
day that is not a Legal Holiday with the same force and effect as
if surrendered on such last day.
6.3 FRACTIONAL SHARES. The Company will not issue a
fractional share of Common Stock upon conversion of a Security.
Instead the Company will deliver to the converting Securityholder
its
<PAGE>
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check for the current market value of the fractional share. The
current market value of a fraction of a share is determined by
multiplying the current market price of a full share by the
fraction, and rounding the result to the nearest cent.
For purposes of this Section, the current market price of a
share of Common Stock is the Quoted Price of the Common Stock on
the last Trading Day prior to the conversion date.
6.4 TAXES ON CONVERSION. If a Holder of a Security converts
it, the Company shall pay any documentary, stamp or similar issue
or transfer tax due on the issue of shares of Common Stock upon the
conversion. However, the Holder shall pay any such tax which is
due because the shares are issued in a name other than such
Holder's.
6.5 COMPANY TO PROVIDE STOCK. The Company shall reserve at
all times and keep available, free from preemptive rights, out of
its authorized but unissued Common Stock, enough shares of Common
Stock to permit the conversion of the Securities.
All shares of Common Stock which may be issued upon conversion
of the Securities shall be fully paid and nonassessable.
The Company shall endeavor to comply with all applicable
securities laws regulating the offer and delivery of shares of
Common Stock upon conversion of Securities and shall endeavor to
list such shares on each national securities exchange on which the
Common Stock is listed, or to have such shares approved for
quotation on the Nasdaq National Market or other over-the-counter
market on which the Common Stock is traded.
6.6 ADJUSTMENT FOR CHANGE IN CAPITAL STOCK. If the Company:
(1) issues any shares of its capital stock as a dividend
(or other distribution) on its Common Stock;
(2) subdivides its outstanding shares of Common Stock
into a greater number of shares;
(3) combines its outstanding shares of Common Stock into
a smaller number of shares; or
(4) issues by reclassification of its Common Stock any
shares of its capital stock,
then the conversion privilege and the conversion price in effect
immediately prior to such action shall be adjusted so that the
Holder of a Security thereafter converted will receive the number
of shares of capital stock of the Company which would have been
received (and if there is more than one class of such capital
stock, then shares of each class in the same proportions that would
have been received) upon consummation of such action by a Holder of
the number of shares of Common Stock into which such Security might
have been converted immediately prior to such action.
<PAGE>
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The adjustment described in the preceding paragraph shall
become effective immediately after the record date in the case of
a dividend or distribution and immediately after the effective date
in the case of a subdivision, combination or reclassification.
If after an adjustment a Holder of a Security may receive
shares of two or more classes of capital stock of the Company upon
conversion of such Security, the Company shall determine the
allocation of the adjusted conversion price between or among those
classes of capital stock. After such allocation, the conversion
privilege and the conversion price of each class of capital stock
shall thereafter be subject to adjustment on terms comparable to
those applicable to Common Stock in this Article.
6.7 ADJUSTMENT FOR RIGHTS ISSUE. If the Company distributes
any rights or warrants to all holders of its Common Stock entitling
them to subscribe for or purchase shares of Common Stock at a price
per share less than the current market price per share (as defined
in Section 6.11) on the Rights Record Date (as defined below), the
conversion price shall be adjusted in accordance with the following
formula:
0 + (N x P)
-----------
AC = CC x M
-------------
0 + N
where:
AC = the adjusted conversion price.
CC = the current conversion price.
0 = the number of shares of Common Stock
outstanding on the Rights Record Date.
N = the number of additional shares of Common
Stock offered.
P = the offering price per share of the additional
shares.
M = the current market price per share of Common
Stock on the Rights Record Date.
The adjustment shall become effective immediately after
the record date for the determination of shareholders entitled to
receive such rights or warrants (the "Rights Record Date").
6.8 ADJUSTMENT FOR CERTAIN DISTRIBUTIONS. Subject to the last
paragraph of this Section 6.8, if the Company distributes to all
holders of its Common Stock of cash, debt securities (or other
evidences of indebtedness) or other assets (excluding dividends or
distributions for which adjustment is required to be made under
Section 6.9), the conversion price shall be reduced in accordance
with the following formula:
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AC = CC x M - P
-----
M
where:
AC = the adjusted conversion price.
CC = the current conversion price.
M = the current market price per share of Common
Stock on the Relevant Record Date (as defined
below).
P = the aggregate fair market value on the
Relevant Record Date (as determined in good
faith by the Board of Directors) of the cash,
debt securities (or other evidences of
indebtedness) or other assets distributed
applicable to one share of Common Stock.
The adjustment shall become effective immediately after the
record date for the determination of shareholders entitled to
receive the distribution (the "Relevant Record Date").
No adjustment will be made with respect to this Section 6.8
if, in lieu of such adjustment, the holders of the Securities, upon
conversion, will be entitled to receive, in addition to the shares
of Common Stock into which such Securities are convertible, the
kind and amount of debt securities (or other evidences of
indebtedness) or other assets comprising the distribution that such
holders would have received had they converted their Securities
immediately prior to the Record Date.
6.9 ADJUSTMENT FOR ALL CASH DISTRIBUTION. Subject to the last
two paragraphs of this Section 6.9, if the Company shall pay or
make a dividend or other distribution consisting exclusively of
cash to all holders of its Common Stock, the conversion price shall
be reduced in accordance with the following formula:
AC = CC x M - C
-----
M
where:
AC = the adjusted conversion price.
CC = the current conversion price.
M = the current market price per share of Common
Stock on the date fixed for payment of such
distribution.
<PAGE>
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C = the amount of cash so distributed and not
excluded (as provided below) applicable to one
share of Common Stock.
The adjustment shall become effective immediately prior to the
opening of business on the day following the date fixed for payment
of such distribution.
6.10 ADJUSTMENT FOR TENDER OR EXCHANGE OFFER. Subject to the
last paragraph of this Section 6.10, in the event that a tender or
exchange offer (other than an odd-lot offer) made by the Company or
any subsidiary of the Company for all or a portion of the Common
Stock shall expire and such tender or exchange offer (as amended
upon the expiration thereof) shall require the payment to
stockholders of consideration per share of Common Stock having a
fair market value (as determined in good faith by the Board of
Directors) that, as of the last time (the "Expiration Time")
tenders or exchanges may be made pursuant to such tender or
exchange offer, exceeds 105% of the current market price per share
of Common Stock on the trading day next succeeding the Expiration
Time, the conversion price shall be reduced in accordance with the
following formula:
AC = CC x O x M
----------
P + (T x M)
where:
AC = the adjusted conversion price.
CC = the current conversion price.
O = the number of shares of Common Stock
outstanding (including any tendered or
exchanged shares) at the Expiration Time.
P = the fair market value of the aggregate
consideration payable to shareholders of
Common Stock based on the acceptance (up to
any maximum specified in the terms of the
tender or exchange offer) of all shares of
Common Stock validly tendered or exchanged and
not withdrawn as of the Expiration Time (the
shares of Common Stock so accepted, up to any
such maximum, being referred to as the
"Purchased Shares").
T = the number of shares of Common Stock
outstanding (less any Purchased Shares) on the
Expiration Time.
M = the current market price per share of Common
Stock on the trading day next succeeding the
Expiration Time.
The adjustment shall become effective immediately prior to the
opening of business on the day following the Expiration Time.
<PAGE>
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In the event that the Company is permanently prevented by
applicable law from effecting any such purchases or all such
purchases are rescinded, the conversion price shall again be
adjusted to be the conversion price which would then be in effect
if such tender or exchange offer had not been made.
6.10A ADJUSTMENT OF CONVERSION PRICE UPON ISSUANCES TO
RESTRICTED PURCHASERS. (a) If and whenever after the date hereof
the Company shall issue or sell, or shall in accordance with
Section 6.10B be deemed to have issued or sold, any shares of
Common Stock to (i) Jesup & Lamont Capital Markets, Inc. or any
party who is an affiliate thereof or (ii) any Person who is a
beneficial owner (as such term is used in Rule 13d-3 promulgated
under the Exchange Act) of more than five percent (5%) of the
issued and outstanding shares of Common Stock of the Company (each,
a "Restricted Purchaser") for a consideration per share (the
"Adjusted Conversion Price") less than the then existing conversion
price per share (initially, $1.50 per share) on the date which is
the earlier of the date immediately preceding (i) the date of such
issue or sale or (ii) the date of the announcement of such issue or
sale, then, forthwith upon such issue or sale, the conversion price
applicable to the Debenture shall, subject to Section 6.10B, be
reduced to the Adjusted Conversion Price.
(b) Notwithstanding the provisions of this Section 6.10A
and Section 6.10B, no adjustment of the conversion price (other
than pursuant to Section 6.10(B)(c)) shall be required as a result
of (i) the issuance of shares of Common Stock upon conversion of
the Debenture, (ii) the issuance of Common Stock in an underwritten
public offering, (iii) the issuance of Common Stock or derivative
securities exchangeable, exercisable or convertible into Common
Stock pursuant to the terms of the Company's Series A Cumulative
Convertible Preferred Stock ("Series A Preferred") (PROVIDED,
HOWEVER, except as set forth in subparagraph (iv) hereof,
adjustment to the conversion price shall be applicable for all new
issuances of Series A Preferred), (iv) the payment of payment-in-
kind dividends on the Series A Preferred, (v) the issuance of
Common Stock or Convertible Securities (as defined in Section
6.10B(g)) to Northstar High Total Return Fund or any other fund
advised by Northstar Investment Management, or (vi) the exercise or
conversion of any derivative security outstanding on August 13,
1997 and held by any present or past employee, officer or director
of the Company.
6.10B EFFECT OF CERTAIN EVENTS ON CONVERSION PRICE. For
purposes of determining the Adjusted Conversion Price under Section
6.10A, the following shall be applicable:
(a) ISSUANCE OF OPTIONS. In case at any time the
Company shall in any manner grant any Options (including Options
for Convertible Securities) to a Restricted Purchaser, and the
price per share for which Common Stock is issuable upon the
exercise of such Options or upon conversion or exchange of such
Convertible Securities
(determined by dividing (i) the total amount, if any, received
or receivable by the Company as consideration for the granting
of such Options, plus the minimum aggregate amount of
additional consideration payable to the Company upon the
exercise of all such Options, plus, in the case of such
Options which relate to Convertible Securities, the minimum
aggregate amount of additional consideration, if any, payable
upon the issue or sale of such Convertible Securities and upon
the conversion or exchange thereof, by (ii) the total
<PAGE>
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maximum number of shares of Common Stock issuable upon the
exercise of such Options or upon the conversion or exchange of
all such Convertible Securities issuable upon the exercise of
such Options)
shall be less than the current conversion price determined as of
the earlier of the date immediately preceding (i) the date of
granting such Options or (ii) the date of any announcement of the
granting of such Options, THEN the total maximum number of shares
of Common Stock issuable upon the exercise of such Options or upon
conversion or exchange of the total maximum amount of such
Convertible Securities issuable upon the exercise of such Options
shall (as of the date of grant of such Options) be deemed to be
outstanding and to have been issued for such price per share. No
adjustment of the conversion price shall be made upon the actual
issue of such Common Stock or of such Convertible Securities upon
exercise of such Options or upon the actual issue of such Common
Stock upon conversion or exchange of such Convertible Securities,
except as otherwise provided in Section 6.10B(c).
(b) ISSUANCE OF CONVERTIBLE SECURITIES. In case the
Company shall in any manner issue or sell any Convertible
Securities to a Restricted Purchaser, and the price per share for
which Common Stock is issuable upon such conversion or exchange of
such Convertible Securities
(determined by dividing (i) the total amount received or
receivable by the Company as consideration for the issue or
sale of such Convertible Securities, plus the minimum
aggregate amount of additional consideration, if any, payable
to the Company upon the conversion or exchange thereof, by
(ii) the total maximum number of shares of Common Stock
issuable upon the conversion or exchange of all such
Convertible Securities)
shall be less than the current conversion price on the date which
is the earlier of the date immediately preceding (i) the date of
such issue or sale of Convertible Securities or (ii) the date of
the announcement of such issue or sale of such Convertible
Securities, THEN the total maximum number of shares of Common Stock
issuable upon conversion or exchange of all such Convertible
Securities shall (as of the date of the issue or sale of such
Convertible Securities) be deemed to be outstanding and to have
been issued for such price per share. Except as otherwise provided
in Section 6.10B(c), no adjustment of the conversion price shall be
made upon the actual issue of such Common Stock upon conversion or
exchange of such Convertible Securities, and if any such issue or
sale of such Convertible Securities is made upon exercise of any
Options for which adjustments of the conversion price have been
made or are to be made pursuant to other provisions of this Section
6.10B, no further adjustment of the conversion price shall be made
by reason of such issue or sale.
(c) CHANGE IN OPTION OR CONVERSION PRICE. If the
purchase price provided for in any Option referred to in Section
6.10B(a), the additional consideration, if any, payable upon
conversion or exchange of any Convertible Securities referred to in
Section 6.10B(a) or 6.10B(b), or the rate at which any Convertible
Securities referred to in Section 6.10B(a) or 6.10B(b) are
convertible into or exchangeable for Common Stock, shall change at
any time (other than under or by reason of provisions designed to
protect against dilution of the type set forth in this Section
<PAGE>
-15-
6.10B or in Sections 6.6 through 6.10A), then the conversion price
in effect at the time of such change shall forthwith be adjusted to
the conversion price which would have been in effect at such time
had such Option or Convertible Securities still outstanding
provided for such changed purchase price, additional consideration
or conversion rate, as the case may be, at the time initially
granted, issued or sold.
(d) TREATMENT OF EXPIRED OPTIONS AND UNEXERCISED
CONVERTIBLE SECURITIES. Upon the expiration of any Option or the
termination of any right to convert or exchange any Convertible
Securities (without any exercise of such Option or right to convert
or exchange), the Adjusted Conversion Price then in effect
hereunder shall forthwith be adjusted to the conversion price which
would have been in effect at the time of such expiration or
termination had such Option or Convertible Securities, to the
extent outstanding immediately prior to such expiration or
termination, never been issued, and the Common Stock issuable
thereunder shall no longer be deemed to be outstanding. No increase
in the conversion price made pursuant to this paragraph (d) shall
exceed the amount of any decrease in the conversion price effected
pursuant to other provisions of this Section 6.10B in respect of
such unexercised expired or terminated Options or Convertible
Securities, the purpose of this Section 6.10B(d) being to reverse
any adjustments in the conversion price previously made pursuant to
other provisions of this Section 6.10B in respect of such
unexercised expired or terminated Options or Convertible
Securities.
(e) CALCULATION OF CONSIDERATION RECEIVED. In case any
shares of Common Stock, Options or Convertible Securities shall be
issued or sold or deemed to have been issued or sold for cash, the
consideration received therefor shall be deemed to be the aggregate
proceeds payable to the Company therefor, prior to deduction of any
expenses incurred and any underwriting commission or concessions
paid or allowed by the Company in connection therewith. In case any
shares of Common Stock, Options or Convertible Securities shall be
issued or sold for a consideration other than cash, the amount of
consideration other than cash received by the Company shall be
deemed to be the fair value, determined in good faith by the Board
of Directors, of such consideration except where such consideration
consists of securities, in which case the amount of the
consideration received by the Company shall be deemed to be the
current market price thereof as of the date of receipt. In case any
shares of Common Stock, Options or Convertible Securities shall be
issued in connection with any merger in which the Company is the
surviving corporation, the amount of consideration therefor shall
be deemed to be the fair value, determined in good faith by the
Board of Directors, of such portion of the net assets and business
of the non-surviving corporation as shall be attributable to such
Common Stock, Options or Convertible Securities, as the case may
be.
(f) HOLDERS AGREEMENTS NOT TO AMEND. It is expressly
acknowledged and agreed that neither Section 6.10A nor Section
6.10B shall be deemed to amend or adjust the conversion price if
the Company shall obtain the written consent of the Holders of at
least a majority in aggregate principal amount of the Securities
prior to the issuance of Common Stock, Options or Convertible
Securities, as the case may be.
(g) "CONVERTIBLE SECURITIES." As used herein
"Convertible Securities" shall mean any stock or other securities
convertible into or exchangeable for Common Stock issued after the
date hereof, whether or not the right to convert or exchange the
same is immediately exercisable.
<PAGE>
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(h) "OPTIONS." As used herein, "Options" shall mean any
rights to subscribe for or to purchase, or any warrants or options
for the purchase of, Common Stock or Convertible Securities issued
after the date hereof, whether or not such Options are immediately
exercisable.
(i) "PRIOR ADJUSTMENT TO CONVERSION PRICE. No action,
issuance or other matter covered by Section 6.10A or Section 6.10B
shall be deemed to amend or adjust the conversion price of the
Debentures if or to the extent the same action, issuance or other
matter is also covered by Section 6.6, 6.7, 6.8, 6.9 or 6.10 and
such action, issuance or other matter shall thereupon result in the
amendment or adjustment of the then current conversion price.
6.11 CURRENT MARKET PRICE. For purposes of Sections 6.7, 6.8,
6.9 and 6.10, the current market price per share of Common Stock on
any date is the average of the Quoted Prices of the Common Stock
for five consecutive Trading Days selected by the Company
commencing not more than 20 Trading Days before, and ending not
later than, the earlier of the date in question and the Trading Day
before the "ex" date, if any, with respect to the issuance or
distribution requiring such computation. The term "'ex' date,"
when used with respect to any issuance or distribution, means the
first Trading Day on which the Common Stock trades regular way in
the market from which the Quoted Price is then to be determined
without the right to receive such issuance or distribution.
6.12 WHEN ADJUSTMENT MAY BE DEFERRED. No adjustment in the
conversion price need be made unless the adjustment would require
an increase or decrease of at least 1% in the conversion price then
in effect. Any adjustments which are not made shall be carried
forward and taken into account in any subsequent adjustment.
All calculations under this Article shall be made to the
nearest cent or to the nearest 1/l00th of a share, as the case may
be.
6.13 STOCKHOLDER RIGHTS PLAN. In the event the Company
implements a stockholder rights plan, such rights plan shall
provide that upon conversion of the Securities, the Holders will
receive, in addition to the Common Stock issuable upon such
conversion, the rights issued under such rights plan
(notwithstanding the occurrence of an event causing such rights to
separate from the Common Stock at or prior to the time of
conversion), PROVIDED, that such Holder would not be an ineligible
Person pursuant to such plan.
6.14 WHEN NO ADJUSTMENT REQUIRED. No adjustment need be made
for (i) rights to purchase Common Stock pursuant to a Company plan
for reinvestment of dividends or interest; (ii) a change in the par
value (including a change to no par value) of the Common Stock;
(iii) the repurchase of shares of Common Stock pursuant to the
provisions of employee and incentive stock option plans; and (iv)
the payment of in-kind dividends to holders of the Company's Series
A Cumulative Convertible Preferred Stock.
To the extent the Securities become convertible into cash, no
adjustment need be made thereafter as to the cash. Interest will
not accrue on the cash.
<PAGE>
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Notwithstanding any provision to the contrary in this
Security, no adjustment shall be made in the conversion price which
would have the effect of reducing the conversion price below the
par value of the Common Stock.
6.15 NOTICE OF ADJUSTMENT. Whenever the conversion price is
adjusted, the Company shall promptly mail to Securityholders a
notice of the adjustment together with a statement of the facts
requiring the adjustment and the manner of computing it. In the
absence of manifest error, such notice shall be presumptive
evidence that the adjustment is correct.
6.16 VOLUNTARY REDUCTION. The Company from time to time may
reduce the conversion price by any amount for any period of time if
the period is at least 20 days and if the reduction is irrevocable
during the period. Notwithstanding any provision to the contrary
in this Security, the reduction of the conversion price pursuant to
this Section 6.16 shall not require the consent of any
Securityholder.
Whenever the conversion price is reduced, the Company shall
mail to Securityholders a notice of the reduction. The Company
shall mail the notice at least 15 days before the date the reduced
conversion price takes effect. The notice shall state the reduced
conversion price and the period during which it will be in effect.
A reduction of the conversion price does not change or adjust
the conversion price otherwise in effect for purposes of Sections
6.6 through 6.10.
6.17 NOTICE OF CERTAIN TRANSACTIONS. If:
(1) the Company takes any action which would require an
adjustment in the conversion price pursuant to Section 6.08
and if the Securityholders are, in lieu thereof, participants
therein;
(2) the Company takes any action of the nature specified
in Section 6.18; or
(3) there is a dissolution or liquidation of the
Company,
the Company shall mail to Securityholders a notice stating the
record date for any such distribution or the effective date of any
such subdivision, combination, reclassification, consolidation,
merger, transfer, lease, liquidation or dissolution. The Company
shall mail the notice at least 15 days before such date. Failure
to mail the notice or any defect in it shall not affect the
validity of any transaction referred to in clause (1), (2) or (3)
of this Section.
6.18 CONSOLIDATION, MERGER OF THE COMPANY OR TRANSFER OR
LEASE. If the Company is a party to a consolidation, merger or
transfer or lease of assets subject to Section 9.11 or a merger
which reclassifies or changes its outstanding Common Stock, the
Person formed by such consolidation or resulting from such merger
or which assumes or leases such assets shall assume this Security
and the obligations hereunder.
<PAGE>
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As a condition of such consolidation, merger, transfer or
lease, lawful and adequate provisions shall be made whereby each
Holder of a Security may convert the Securities into the kind and
amount of securities, cash or other assets receivable upon the
consolidation, merger, transfer or lease by a holder (other than
any party to such transaction or any of its affiliates) of the
number of shares of Common Stock into which such Security might
have been converted immediately before the effective date of such
transaction, assuming such holder of Common Stock failed to
exercise his rights of election, if any, as to the kind or amount
of securities, cash or other property receivable upon such
consolidation, merger, transfer or lease (provided that, if the
kind or amount of securities, cash or other property receivable
upon such consolidation, merger, transfer or lease is not the same
for each share of Common Stock held immediately prior to such
consolidation, merger, transfer or lease by others than the parties
to such transaction or their affiliates and in respect of which
such rights of election shall not have been exercised ("non-
electing share"), then for the purposes of this Section the kind
and amount of securities, cash and other property receivable upon
such consolidation, merger, transfer or lease by each non-electing
share shall be deemed to be the kind and amount so receivable per
share by a plurality of the non-electing shares). The Company will
not effect any such consolidation, merger, transfer or lease,
unless prior to the consummation thereof the successor corporation
(if other than the Company) resulting from such consolidation or
merger or the corporation assuming or leasing such assets shall
assume, by executed written instrument, a copy of which is mailed
or delivered to each Securityholder at the last address of such
Holder appearing on the books of the Company, the obligation to
deliver to such Holder the amount of securities, cash or other
assets as, in accordance with the foregoing provisions, such Holder
would be entitled to receive upon conversion of such Holders'
Security. Such instrument shall provide for adjustments which shall
be as nearly equivalent as may be practical to the adjustments
provided for in this Article. If the issuer of securities
deliverable upon conversion of Securities is an affiliate of the
surviving, transferee or lessee corporation, that issuer shall also
execute such instrument. The successor Company shall mail to each
Securityholder a notice briefly describing the terms of such
instrument.
If this Section applies to a particular event, Section 6.6
shall not apply to such event.
6.19 COMPANY DETERMINATION FINAL. Subject to compliance with
the terms of the Securities, any determination which the Company or
its Board of Directors must make pursuant to Section 6.3, 6.6, 6.8,
6.10, 6.10A, 6.10B, 6.11 or 6.12 shall be conclusive.
7. REPURCHASE AT OPTION OF HOLDER UPON AN INCURRENCE EVENT.
7.1 REPURCHASE UPON AN INCURRENCE EVENT. The Company
covenants and agrees that, in the event that (i) the Company or any
of its Subsidiaries incurs Indebtedness (other than Additional
Permitted Indebtedness or Indebtedness under the Securities),
(ii) the Pro Forma Interest Coverage of the Company and its
Subsidiaries on a consolidated basis, would be less than 2.0:1 and
(iii) the average closing sale price of the Common Stock is less
than $2.00, adjusted for splits, combinations, reclassifications or
similar events, for the twenty Trading Days prior to the incurrence
of such Indebtedness (the occurrence of all of (i), (ii) and (iii),
an "Incurrence Event"), each Holder will have the right, at such
Holder's option, to require the Company to repurchase all, or any
portion that is an integral multiple of $1,000, of such Holder's
Securities on the Incurrence Repurchase Date (as defined
<PAGE>
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in Section 7.3 below) selected as provided below at a repurchase
price which is equal to 100% of the principal amount of such
Securities plus accrued interest to the Incurrence Repurchase Date.
The Company shall comply with the requirements of Rule 13e-4
and Rule 14e-1 under the Exchange Act and any other securities laws
and regulations thereunder to the extent such laws and regulations
are applicable in connection with the repurchase of Securities
pursuant to this Article 7. To the extent the provisions of any
securities laws or regulations conflict with the provisions under
this Article 7, the Company shall comply with the applicable
securities laws and regulations and shall not be deemed to have
breached its obligations under this Article 7 by virtue thereof.
7.2 NOTICES, ETC. Unless the Company shall have theretofore
called for redemption all the outstanding Securities, on or before
the 30th day after the occurrence of an Incurrence Event, the
Company shall mail to each Holder at such Holder's address
appearing in the Securities register a written notice (the "Company
Incurrence Notice") describing the occurrence of the Incurrence
Event and of the repurchase right set forth herein arising as a
result thereof, as well as stating the final date by which the
Securities must be surrendered for repurchase, the conversion price
then in effect, the Incurrence Repurchase Date, the repurchase
price and the procedure which the Holder must follow to elect
repurchase. The Company shall cause a copy of such notice of the
repurchase right to be sent at least once to the Dow Jones News
Service or similar business service in the United States.
No failure of the Company to give the foregoing notices or
defect therein shall limit any Holder's right to exercise a
repurchase right or affect the validity of the proceedings for the
repurchase of Securities.
7.3 EXERCISING REPURCHASE RIGHT. (a) To elect repurchase of
any Securities or portion thereof, the Holder will be required to
surrender, on or before the Final Incurrence Surrender Date (as
defined below), to the Company, such Security duly endorsed or
assigned to the Company or in blank, together with written notice
of the Holder's election to have the Company repurchase all or any
$1,000 portion of such Security specified in such notice. Election
of repurchase by a Holder shall be irrevocable. "Final Incurrence
Surrender Date" shall mean the date which is, subject to any
contrary requirements of applicable law, 60 days after the date of
mailing of the Company Incurrence Notice. "Incurrence Repurchase
Date" shall mean the date selected by the Company for the
repurchase of the Securities that is not less than 10 and not more
than 30 days after the Final Incurrence Surrender Date.
(b) In the event a repurchase right shall be exercised
in accordance with the terms hereof, the Company shall pay or
cause to be paid the repurchase price in cash to the Holder on
the Incurrence Repurchase Date; PROVIDED, HOWEVER, that
installments of interest that mature on or prior to the
Incurrence Repurchase Date shall be payable in cash to the
Holders of such Securities, registered as such at the close of
business on the relevant record date specified in the
Securities according to the terms and provisions of Article 1.
(c) If any Security surrendered for repurchase shall not
be so paid on the Incurrence Repurchase Date, the principal
amount which is payable at maturity shall, until the
repurchase price (as calculated at the date of payment) is
paid, continue to bear interest from the Incurrence Repurchase
Date at the rate borne by the Security and each such Security
shall
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continue to remain convertible into Common Stock until said
repurchase price shall have been paid to the Holder.
(d) Any Security which is to be repurchased only in part
shall be surrendered to the Company (with, if the Company so
requires, due endorsement by, or a written instrument of
transfer in form satisfactory to the Company duly executed by,
the holder thereof or his attorney duly authorized in
writing), and the Company shall execute and deliver to the
Holder without service charge, a new Security or Securities,
of any authorized denomination as requested by such Holder in
aggregate principal amount equal to and in exchange for the
unrepurchased portion of the principal of the Security so
surrendered.
8. AMENDMENT, SUPPLEMENT, WAIVER.
8.1 WITHOUT CONSENT OF HOLDERS. The Company may amend or
supplement the Securities without the consent of any
Securityholder:
(1) to evidence the succession of another Person to the
Company and the assumption by any such successor of the
covenants of the Company herein; or
(2) to add to the covenants of the Company for the
benefit of the Holders of the Securities or to surrender any
right or power herein conferred upon the Company; or
(3) to permit or facilitate the issuance of Securities
in uncertificated form; or
(4) to cure any ambiguity or defect in and to correct or
supplement any provision in any Security that may be
inconsistent with any other provision in the Security;
PROVIDED, HOWEVER, that any such action pursuant to this
clause (4) shall not adversely affect the interests of the
Holders of Securities in any material respect.
8.2 WITH CONSENT OF HOLDERS. The Company may amend or
supplement the Securities with the written consent of the Holders
of at least a majority in aggregate principal amount of the
Securities, and the Holders of a majority in aggregate principal
amount of the Securities may waive compliance by the Company with
any provision of the Securities. However, without the consent of
each Securityholder affected, an amendment, supplement or waiver
under this Section may not:
(1) change the stated maturity date of the principal of,
or interest on, any Security or adversely affect the right of
a Holder to convert any Security;
(2) reduce the principal amount of, or premium, if any,
or interest on, any Security;
(3) change the currency for payment of principal of, or
interest on, any Security;
(4) impair the right to institute suit for the
enforcement of any payment on or with respect to any Security;
<PAGE>
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(5) reduce the amount of Securities whose Holders must
consent to an amendment or supplement hereto or the waiver of
defaults or compliance hereunder;
(6) make any change in Sections 10.4, 10.5 or this
Section 8.2 (second sentence); or
(7) amend, modify or change in any material respect the
obligation of the Company to offer to repurchase the
Securities in the event of a Fundamental Change or an
Incurrence Event or modify any of the provisions or
definitions with respect thereto after a Fundamental Change or
an Incurrence Event, as the case may be, has occurred.
It shall not be necessary for the consent of the Holders under
this Section to approve the particular form of any proposed
amendment, supplement or waiver, but it shall be sufficient if such
consent approves the substance thereof. The Company may establish
a record date for determining Securityholders of record entitled to
give any consent or waiver.
After an amendment or supplement under this Section becomes
effective, the Company shall mail to Securityholders a notice
briefly describing the amendment or supplement. Any failure of the
Company to mail each such notice, or any defect therein, shall not,
however, in any way impair or affect the validity of any amendment
or supplement.
8.3 REVOCATION AND EFFECT OF CONSENTS. Until an amendment,
supplement or waiver becomes effective, a consent to it by a Holder
of a Security is a continuing consent by the Holder and every
subsequent Holder of a Security or portion of a Security that
evidences the same debt as the consenting Holder's Security, even
if notation of the consent is not made on any Security. An
amendment, supplement or waiver becomes effective in accordance
with its terms and thereafter binds every Securityholder. However,
any Holder or subsequent Holder may revoke the consent as to such
Security or portion of a Security if the Company receives the
notice of revocation before the date on which it receives the
consent of the requisite principal amount of the Securities.
Notwithstanding the foregoing, if a record date has been
established for the purpose of determining Securityholders entitled
to consent, such written notice of revocation must be signed by the
Securityholder of record as of the record date or his duly
appointed proxy.
8.4 NOTATION ON OR EXCHANGE OF SECURITIES. The Company may
place an appropriate notation relating to an amendment, supplement
or waiver on any Security thereafter executed. The Company in
exchange for all Securities may issue new Securities that reflect
the amendment, supplement or waiver. Failure to make such notation
or issue such new Securities shall have no effect on such
amendment, supplement or waiver.
9. COVENANTS
9.1 PAYMENT OF SECURITIES. The Company shall pay the
principal of and premium, if any, and interest on, the Securities
on the dates and in the manner provided herein.
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The Company shall pay interest on overdue principal and
premium, if any, at 10% per annum; it shall pay interest on overdue
installments of interest at the same rate per annum to the extent
lawful.
9.2 SEC REPORTS. Notwithstanding that the Company may not be
subject to or required to remain subject to, the reporting
requirements of Section 13 or 15(d) of the Exchange Act or
otherwise report on an annual and quarterly basis on forms provided
for such annual and quarterly reporting pursuant to rules and
regulations promulgated by the Commission, the Company shall
continue to file with the Commission such annual and interim
reports (each including a "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and, with respect to
the annual information only, a report thereon by the Company's
certified independent accountants) on Forms 10-K and Q,
respectively, as the Company would be required to file were it
subject to such reporting requirements within the time periods
prescribed under such rules and regulations, and all reports that
would be required to be filed with the Commission on Form 8-K if
the Company were required to file such reports. The Company shall
not be obligated to file any such reports with the Commission if
the Commission does not permit such filings but shall remain
obligated to provide such reports to the Holders within the periods
of time referred to above. The Company shall provide to any Holder
of Securities any information reasonably requested by the Holder
concerning the Company (including financial statements) necessary
in order to permit such Holder to transfer Securities in accordance
with Rule 144A promulgated under the Securities Act. In addition,
the Company shall cause its annual reports to shareholders and any
quarterly or other financial reports furnished by it to
shareholders generally to be mailed at the expense of the Company
no later than the date such materials are mailed or made available
to the Company's shareholders, to the Holders at their addresses as
set forth in the register of Securities maintained by the
Registrar.
9.2A COMPLIANCE CERTIFICATE. The Company shall deliver to
each Holder within 120 days after the end of each fiscal year of
the Company, a brief certificate from the principal executive
officer, principal financial officer or principal accounting
officer as to his or her knowledge of the Company's compliance with
all conditions and covenants under this Security. For purposes of
this Section 9.2A, such compliance shall be determined without
regard to any period of grace or requirement of notice provided
under this Security. The first certificate pursuant to this Section
shall be for the year ending December 31, 1997.
9.3 CORPORATE EXISTENCE. Subject to Section 9.11, the Company
will do or cause to be done all things necessary to preserve and
keep in full force and effect its corporate existence, rights
(charter and statutory) and franchise; PROVIDED, HOWEVER, that the
Company shall not be required to preserve any such right or
franchise if the Board of Directors shall determine that the
preservation thereof is no longer desirable in the conduct of the
business of the Company and that the loss thereof is not
disadvantageous in any material respect to the Holders.
9.4 NOTICE OF DEFAULTS. In the event that indebtedness for
borrowed money of the Company in an amount in excess of $10,000,000
is accelerated because of the occurrence of any default under such
indebtedness, the Company will promptly give written notice to the
Holders of such failure or acceleration, as the case may be, or of
the occurrence of an event which, with the giving of notice or the
passage of time, or both, would entitle the holder or holders of
such indebtedness to declare such indebtedness due and payable
before its maturity.
<PAGE>
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9.5 LIMITATION ON LIENS. The Company will not, and will not
permit any Subsidiary to, create, incur, assume or suffer to exist
any Liens (other than Permitted Liens) of any kind against or upon
any of their respective property or assets, or any proceeds
therefrom, unless (i) in the case of Liens on property, assets or
proceeds securing Indebtedness that is expressly subordinate or
junior in right of payment to the Securities, the Securities are
secured by a Lien on such property, assets or proceeds that is
senior in priority to such Liens and (ii) in all other cases, the
Securities are equally and ratably secured.
9.6 LIMITATION ON ACQUISITIONS. The Company will not, and
will not permit any Subsidiary to, acquire (by merger,
consolidation or acquisition of stock or assets) any corporation,
partnership or other business organization or any division,
operating unit, line of business or subdivision thereof (each an
"Entity"), in a single transaction or series of related
transactions (an "Acquisition"), for total consideration in excess
of $2,000,000 unless the fair market value at the time of entering
into such transaction (as evidenced by, in the case of
consideration other than cash or Common Stock of the Company ("Non-
Cash Consideration"), (i) a resolution of the Board of Directors of
the Company if the fair market value of such Non-Cash Consideration
is less than or equal to $1,000,000 or (ii) an opinion issued by a
nationally recognized investment banking firm, nationally
recognized telecommunications industry consultant or nationally
recognized independent public accounting firm if the fair market
value of such Non-Cash Consideration is greater than $1,000,000) of
the total consideration given for such Acquisition is less than
200% of the Annualized Revenues of the Entity acquired.
"Annualized Revenues" for any such Entity shall mean the product of
(i) revenues of such Entity for the most recent fiscal quarter for
which financial statements are available, calculated on a basis
consistent with such Entity's most recent audited annual statements
(except for the absence of footnotes and subject to normally
recurring year-end audit adjustments) or, if not available, actual
billings for such period, and (ii) four.
9.7 LIMITATIONS ON RESTRICTED PAYMENTS. The Company will not,
and will not permit any Subsidiary to, directly or indirectly, make
any Restricted Payment, unless at the time of and immediately after
giving effect to the proposed Restricted Payment (with the value of
any such Restricted Payment, if other than cash, to be determined
by the Board of Directors of the Company, whose determination shall
be conclusive and evidenced by a resolution of the Board of
Directors (including a majority of the Independent Directors),
(i) no Default or Event of Default (and no event that, after notice
or lapse of time, or both, would become an "event of default" under
the terms of any Indebtedness of the Company or its Subsidiaries)
shall have occurred and be continuing or would occur as a
consequence thereof, and (ii) the aggregate amount of all
Restricted Payments made after the Issue Date shall not exceed the
sum of (a) 50% of cumulative Consolidated Net Income of the Company
(or if cumulative Consolidated Net Income is a loss, less 100% of
such loss) from the Issue Date to the last day of the full fiscal
quarter for which financial information is available (but in no
event ending more than 135 days prior to the date of such proposed
Restricted Payment), plus (b) the aggregate amount of all net cash
proceeds received after the Issue Date by the Company from the
issuance and sale (other than to a Subsidiary) of Capital Stock
(other than Disqualified Capital Stock).
The foregoing provisions will not prohibit (a) so long as
there is no Default or Event or Default continuing, the payment of
any dividend within 60 days after the date of declaration thereof,
if at such
<PAGE>
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declaration date such payment would have been permitted under the
terms of this Security, and such payment shall be deemed to have
been paid on such date of declaration for purposes of clause (ii)
of the preceding paragraph, (b) the payment of dividends on, or the
redemption or repurchase of, the 180,000 shares of the Company's
Series A Cumulative Convertible Preferred Stock outstanding on
December 31, 1996, and any additional shares of Series A Preferred
Stock, issued as pay-in-kind dividends thereon, (c) the repurchase
at below then current fair market value (based on the average
closing price of the Common Stock for the twenty trading days
preceding such repurchase) of employee and director options or
shares in accordance with the Company's stock option plans or
agreements related thereto, (d) pay cash in lieu of fractional
shares for stock splits, reverse stock splits and recapitalizations
and upon conversions of Capital Stock or the Securities or
(e) redeem, repurchase of otherwise prepay up to $300,000 of
subordinated Indebtedness of the Company outstanding as of the
Issue Date.
9.8 LIMITATION OF TRANSACTIONS WITH AFFILIATES. The Company
will not, and will not permit any of its Subsidiaries to, directly
or indirectly, enter into or suffer to exist any transaction or
series of related transactions (including, without limitation, the
sale, purchase, exchange or lease of assets, property or services)
with any Affiliate of the Company (other than the Company or a
Subsidiary of the Company) unless (i) such transaction or series of
transactions is on terms that are no less favorable to the Company
or such Subsidiary, as the case may be, than would be available in
a comparable transaction in arm's-length dealings with an unrelated
third party, and (ii) with respect to any transaction or series of
transactions involving aggregate payments in excess of $500,000,
the Company delivers to the Holders an Officers' Certificate
certifying that such transaction or series of related transactions
complies with clause (i) above and that such transaction or series
of related transactions has been approved by a majority of the
members of the Board of Directors of the Company and approved by a
majority of the Independent Directors. Notwithstanding the
foregoing, this provision will not apply to (i) employment
agreements or compensation or employee benefit arrangements with
any officer, director or employee of the Company entered into in
the ordinary course of business on customary terms (including
customary benefits thereunder), (ii) any transaction entered into
by or among the Company or one of its subsidiaries with one or more
subsidiaries of the Company, (iii) payment of reasonable and
customary fees to directors of the Company who are not employees of
the Company and the payment of reasonable and customary
compensation for director and Board of Director observer fees,
meeting expenses, insurance premiums and indemnities to the extent
permitted by law, and (iv) issuance and repurchase of stock options
(and shares of Capital Stock upon exercise thereof) pursuant to
stock options plans and agreements related thereto and loans or
advances to employees for relocation or travel expenses in the
ordinary course of business on customary terms.
9.9 CONDUCT OF BUSINESS. The Company and its Subsidiaries
will not engage in any businesses which are not the same, similar,
ancillary, complementary or related to the businesses in which the
Company and its Subsidiaries are engaged on the Issue Date.
9.10 LIMITATION ON INCURRENCE OF SUBORDINATED INDEBTEDNESS.
The Company will not issue any Indebtedness subordinate or junior
in right of payment to the Securities that matures, or requires any
mandatory payment of principal, prior to 120 days after the final
maturity of the Securities, other than any such subordinate or
junior Indebtedness which is issued by the Company as part of the
<PAGE>
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purchase consideration paid to the seller of any stock, assets or
property to the Company or any of its Subsidiaries.
9.11 WHEN COMPANY MAY MERGE, ETC. The Company shall not
consolidate or merge with or into, or sell, lease, convey or
otherwise dispose of all or substantially all of its assets to, any
Person unless:
(1) the Company is the surviving Person or that Person
is a corporation organized under the laws of the United
States, any state thereof or the District of Columbia or a
corporation or comparable legal entity organized under the
laws of a foreign jurisdiction and whose equity securities are
listed on a national securities exchange in the United States
or authorized for quotation on the Nasdaq National Market;
(2) that Person assumes all the obligations of the
Company under the Securities, except that it need not assume
the obligations of the Company as to conversion of Securities
if pursuant to Section 6.18, the Company or another Person
agrees to deliver securities, cash or other assets upon
conversion of Securities;
(3) immediately after giving effect to such transaction,
no Default shall have occurred and be continuing; and
(4) the Company has delivered to the Holders an
Officers' Certificate stating that such consolidation, merger,
transfer or lease and such assumption comply with this Article
and that all conditions precedent herein provided for related
to such transaction have been complied with.
The surviving, transferee or lessee corporation shall be the
successor Company. Upon compliance with these provisions by a
successor or transferee corporation or entity, the Company shall
be released from its obligations under the Securities.
10. DEFAULTS AND REMEDIES.
10.1 EVENTS OF DEFAULT. An "Event of Default" occurs if:
(1) the Company defaults in the payment of interest on
any Security when the same becomes due and payable and the
Default continues uncured for a period of 30 days;
(2) the Company defaults in the payment of (A) principal
of or premium, if any, on any Security when the same becomes
due and payable, whether at maturity, upon redemption or
otherwise, or (B) the Repurchase Price in respect of any
Security when due;
(3) the Company fails to comply with any of its other
covenants or agreements set forth in this Security and the
Default continues for the period and after the notice
specified below;
<PAGE>
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(4) the Company defaults with respect to any
indebtedness for borrowed money of the Company, which default
results in acceleration of any such indebtedness which is in
an amount of in excess of $10,000,000;
(5) the Company pursuant to or within the meaning of any
Bankruptcy Law (as defined below):
(A) commences a voluntary case,
(B) consents to the entry of an order for relief
against it in an involuntary case,
(C) consents to the appointment of a Custodian (as
defined below) of it or for all or substantially all of
its property, or
(D) makes a general assignment for the benefit of
its creditors; or
(6) a court of competent jurisdiction enters an order or
decree under any Bankruptcy Law that:
(A) is for relief against the Company in an
involuntary case,
(B) appoints a Custodian of the Company or for all
or substantially all of its property, or
(C) orders the liquidation of the Company,
and the order or decree remains unstayed and in effect for 90
consecutive days.
The term "Bankruptcy Law" means Title 11, U.S. Code or any similar
federal or state law for the relief of debtors. The term
"Custodian" means any receiver, trustee, assignee, liquidator or
similar official under any Bankruptcy Law.
A Default under clause (3) above is not an Event of Default
until the Holders of at least 25% in principal amount of the
Securities notify the Company in writing of the Default and the
Company does not cure the Default within 60 days after receipt of
the notice. The notice must specify the Default, demand that it be
remedied and state that the notice is a "Notice of Default". When
a Default is cured, it ceases to exist.
10.2 ACCELERATION. If any Event of Default described in
Section 10.1(1) through (4) occurs and is continuing, the Holders
of at least 25% in aggregate principal amount of the outstanding
Securities, by written notice to the Company, may declare the
principal of and accrued interest on all Securities to be due and
payable. Upon such declaration such principal and interest shall
be due and payable immediately. If any Event of Default described
in Section 10.1(5) or 10.1(6) occurs the principal of and accrued
interest on all Securities shall automatically become due and
payable, without
<PAGE>
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any action required of the Holders. The Holders of a majority in
principal amount of the Securities by written notice to the Company
may rescind an acceleration and its consequences if all existing
Events of Default have been cured or waived except nonpayment of
principal or interest that has become due solely because of the
acceleration, if the rescission would not conflict with any
judgment or decree of a court of competent jurisdiction.
10.3 OTHER REMEDIES. A delay or omission by any Securityholder
in exercising any right or remedy accruing upon an Event of Default
shall not impair the right or remedy or constitute a waiver of or
acquiescence in the Event of Default. To the extent permitted by
law, no remedy is exclusive of any other remedy and all remedies
are cumulative.
10.4 WAIVER OF PAST DEFAULTS. Subject to Sections 8.2 and
10.5, the Holders of a majority in aggregate principal amount of
the Securities by written notice to the Company may waive an
existing Default and its consequences except a Default in the
payment of the principal of or premium, if any, or interest on any
Security as specified in clauses (1) and (2) of Section 10.1 or a
Default under Article 6. When a Default is waived, it is cured and
ceases to exist.
10.5 RIGHTS OF HOLDERS TO RECEIVE PAYMENT. Notwithstanding
any other provision hereof, the right of any Holder to receive
payment of the principal of and premium, if any, and interest on
this Security on or after the respective due dates expressed in
this Security, and to convert such Security in accordance with
Article 6, or to bring suit for the enforcement of any such payment
on or after such respective due dates and such right to convert, is
absolute and unconditional and shall not be impaired or affected
without the consent of the Holder.
11. DEFINITIONS.
Capitalized terms used herein and not otherwise defined shall
have the following meanings:
"1996 Indenture" means the Indenture dated as of August
12, 1996 between the Company and U.S. Trust Company of New York in
relation to the issuance of the Company's $27,200,000 aggregate
principal amount of 10% Convertible Notes due 2006.
"1996 Securities" means the securities described in and
issued, authenticated and delivered under the 1996 Indenture.
"Additional Permitted Indebtedness" means any
Indebtedness incurred by the Company or its Subsidiaries, as the
same may be amended, modified, renewed, refunded, replaced or
refinanced from time to time, where the aggregate principal amount
of borrowings available or Indebtedness outstanding thereunder does
not exceed (i) 85% of the consolidated inventory and accounts
receivable (excluding accounts receivable subject to third party
accounts receivable billing arrangements or overdue for more than
90 days) of the Company and its Subsidiaries determined on a pro
forma basis as if any acquisition or disposition of stock or assets
to be made on or about the time of any required calculation of
Additional Permitted Indebtedness had occurred plus (ii) the
product of (a) consolidated revenues of the Company and its
Subsidiaries for the most recent six-month period for which
financial
<PAGE>
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statements are available, calculated in accordance with GAAP
(except for the absence of footnotes and subject to normally
recurring year-end audit adjustments) and determined on a pro forma
basis as if any acquisition or disposition of stock or assets had
occurred at the beginning of such six-month period and (b) 2/3.
"Affiliate" means any Person directly or indirectly
controlling or controlled by or under direct or indirect common
control with the Company. For the purposes of this definition,
"control" when used with respect to any specified Person means the
power to direct the management and policies of such Person,
directly or indirectly, whether through the ownership of voting
securities, by contract or otherwise, and the terms "controlling"
and "controlled" have meanings correlative to the foregoing.
"Board of Directors" or "Board" means the Board of
Directors of the Company or any duly authorized committee of the
Board.
"Business Day" means any day that is not a Legal Holiday.
"Capital Lease Obligations" of any Person means, at the
time any determination thereof is to be made, the amount of the
liability in respect of a capital lease for property leased by such
Person that would at such time be required to be capitalized on the
balance sheet of such Person in accordance with GAAP.
"Capital Stock" of any Person means any and all shares,
interests, rights to purchase, warrants, options, participations or
other equivalents of or interests in (however designated) corporate
stock or other equity participations, including partnership
interests, whether general or limited, of such Person, including
any capital stock that has preferential rights to any other capital
stock with respect to dividends or redemption or upon liquidation.
"Common Stock" means shares of the common stock, par
value $.0001, of the Company as it exists at the Issue Date or
shares of any class or classes resulting from any reclassification
or reclassifications thereof and which have no preference in
respect of dividends or of amounts payable in the event of any
voluntary or involuntary liquidation, dissolution or winding up of
the Company and which are not subject to redemption by the Company.
"Consolidated Interest Expense" means, with respect to
any period, the sum, without duplication, of (i) the interest
expense of the Company and its Subsidiaries for such period,
determined on a consolidated basis in accordance with GAAP
consistently applied, including, without limitation,
(a) amortization of debt discount (other than debt discount in
relation to debentures to be redeemed from the proceeds of the
Offering), (b) the net payments, if any, under interest rate
agreements (including amortization of discounts), (c) the interest
portion of any deferred payment obligation and (d) accrued
interest, plus (ii) the interest component of all Capital Lease
Obligations paid, accrued and/or scheduled to be paid or accrued by
the Company and its Subsidiaries during such period (other than the
interest component relating to up to $2 million of Capital Lease
Obligations of the Company and its Subsidiaries), and all
capitalized interest of the Company and its subsidiaries, in each
case as determined on a consolidated basis in accordance with GAAP
consistently applied.
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"Consolidated Net Income" means, with respect to any
period, the net income (or loss) of the Company and its
Subsidiaries, on a consolidated basis, determined in accordance
with GAAP consistently applied, minus (i) extraordinary net gains
and net gains realized on any sale or disposition of assets during
such period, minus (ii) the portion of net income (or loss) of the
Company and its subsidiaries allocable to interests in
unconsolidated Persons, except to the extent of the amount of
dividends or distributions actually paid in cash to the Company or
its subsidiaries by such Person during such period, minus (iii) the
net income of any Person combined with the Company or any of its
subsidiaries on a "pooling-of-interests" basis attributable to any
period prior to the date of combination.
"Default" means any event which is, or after notice or
passage of time would be, an Event of Default.
"Disqualified Capital Stock" means that portion of any
Capital Stock which, by its terms (or by the terms of any security
into which it is convertible or for which it is exchangeable), or
upon the happening of any event (other than an event which would
constitute a Fundamental Change), matures (excluding any maturity
as the result of an optional redemption by the issuer thereof) or
is mandatorily redeemable, pursuant to a sinking fund obligation or
otherwise, or is redeemable at the sole option of the holder
thereof (except, in each case, upon the occurrence of a Fundamental
Change) on or prior to the final maturity date of the Securities.
"GAAP" means, as of any date, generally accepted
accounting principles in the United States and not including any
interpretations or regulations that have been proposed but that
have not become effective.
"Holder" or "Securityholder" means the Person in whose
name a Security is registered on the Company's books.
"Indebtedness" means, with respect to any Person, without
duplication, and whether or not contingent, (i) all indebtedness of
such Person for borrowed money or which is evidenced by a note,
bond, debenture or similar instrument, (ii) all obligations of such
Person in respect of letters of credit or bankers' acceptances
issued or created for the account of such Person, (iii) all
liabilities secured by any consensual Lien (including capital
leases and Liens arising in connection with purchase money debt) on
any property owned by such Person even if such Person has not
assumed or otherwise become liable for the payment thereof to the
extent of the lesser of the amount of the debt secured thereby or
the value of the property subject to such Lien, (iv) all
Disqualified Capital Stock issued by such Person after the date
hereof (other than any Series A Cumulative Convertible Preferred
Stock of the Company issued as a pay-in-kind dividend pursuant to
the terms of the Company's Series A Cumulative Convertible
Preferred Stock outstanding on the Issue Date), and (v) to the
extent not otherwise included, any guarantee by such Person of any
other Person's indebtedness or other obligations described in
clauses (i) through (iv) above. "Indebtedness" of the Company and
its Subsidiaries shall not include trade payables (including,
without limitation, obligations under third party accounts
receivable billing agreements) incurred in the ordinary course of
business and payable in accordance with customary practices and
non-interest bearing installment obligations and accrued
<PAGE>
-30-
liabilities incurred in the ordinary course of business and any
current liability for federal, state, local or other taxes and
inter-company indebtedness among the Company and its Subsidiaries.
"Independent Director" means non-management directors of
any Person.
"Issue Date" means August 13, 1997, the date of original
issuance of the Securities.
"Liens" means any lien, mortgage, deed of trust, pledge,
security interest, charge or encumbrance of any kind (including any
conditional sale or other title retention agreement, any lease in
the nature thereof and any agreement to give any security
interest).
"Officer" means the Chairman and Chief Executive Officer,
the President, any Vice President, the Chief Financial Officer, the
Controller or the Secretary or Assistant Secretary of the Company.
"Officers' Certificate" means a certificate signed by two
Officers.
"Operating Cash Flow" means, with respect to any period,
the net income (or loss) of the Company and its Subsidiaries on a
consolidated basis, determined in accordance with GAAP consistently
applied, plus, without duplication, (i) extraordinary net losses
and net losses realized on any sale or other disposition of assets
during such period, to the extent such losses were deducted in
computing net income (or loss), plus (ii) provision for taxes based
on income or profits, to the extent such provision for taxes was
included in computing such net income (or loss), and any provision
for taxes utilized in computing the net losses under clause (i)
hereof, plus (iii) Consolidated Interest Expense of the Company and
its subsidiaries for such period, plus (iv) depreciation,
amortization and all other non-cash charges, to the extent such
depreciation, amortization and other non-cash charges were deducted
in computing such net income (or loss) (including amortization of
goodwill and other intangibles).
"Permitted Liens" means (i) Liens securing purchase money
debt; (ii) Liens arising in connection with capital leases;
(iii) Liens in favor of the Company or any Subsidiary of the
Company; (iv) Liens to secure debt of any Person which merges with
or into or consolidates with or is otherwise acquired by the
Company or any Subsidiary of the Company or debt encumbering any
asset acquired by the Company or any Subsidiary of the Company, in
either case which debt was not incurred in anticipation of, and was
outstanding prior to, such merger, consolidation or acquisition;
(v) Liens outstanding on the Issue Date; (vi) Liens in favor of the
trustee under the 1996 Indenture and any liens securing the 1996
Securities; (vii) Liens in connection with any Additional Permitted
Indebtedness, including interest rate agreements related thereto;
(viii) Liens for taxes, assessments, governmental charges or claims
which are not yet delinquent or which are being contested in good
faith by appropriate proceedings, if a reserve is maintained to the
extent required by GAAP; (ix) other Liens incidental to the conduct
of the Company's and its Subsidiaries' business or the ownership of
its property and assets not securing any debt for borrowed money,
and which do not in the aggregate materially detract from the value
of the Company's and its Subsidiaries' property or assets when
taken as a whole, or materially impair the use thereof in the
operation of its business; (x) Liens incurred or pledges and
deposits made in the ordinary course of business in connection with
workers'
<PAGE>
-31-
compensation, unemployment insurance and other types of statutory
obligations (including to secure government contracts); (xi) Liens
incurred or deposits made to secure the performance of tenders,
bids, leases, and other obligations of like nature (including
appeal, surety and performance bonds) incurred in the ordinary
course of business (exclusive of obligations for the payment of
borrowed money); (xii) zoning restrictions, servitudes, easements,
rights-of-way, restrictions and other similar charges or
encumbrances incurred in the ordinary course of business which, in
the aggregate, do not materially detract from the value of the
property subject thereto or interfere in any material respect with
the ordinary conduct of the business of the Company or its
Subsidiaries; (xiii) Liens arising out of judgments or awards
against the Company or any of its Subsidiaries with respect to
which the Company or such Subsidiary is prosecuting an appeal or
proceeding for review and the Company or such Subsidiary is
maintaining adequate reserves to the extent required by GAAP;
(xiv) any interest or title of a lessor in the property subject to
any lease other than a capital lease; and (xv) any statutory
warehousemen's, materialmen's, mechanic's, carrier's, supplier's,
vendor's or other similar Lien for sums not then due and payable
(or which, if due and payable, are being contested in good faith
and with respect to which adequate reserves are being maintained to
the extent required by GAAP). "Permitted Liens" shall also include
the extension, renewal, amendment, refinancing or refunding of debt
secured by any Permitted Lien set forth above, except that in the
case of the extension, renewal, amendment, refinancing or refunding
of any debt secured by a Lien under clause (iv) or (v) of this
definition, such Lien does not extend to any other property not
contemplated by the terms of such existing Lien and the principal
amount of debt so secured is not increased.
"Person" means any individual, corporation, partnership,
joint venture, association, joint-stock company, trust,
unincorporated organization or government or any agency or
political subdivision thereof.
"Pro Forma Interest Coverage" means, with respect to any
date of determination, the ratio of (i) Operating Cash Flow for the
most recent full fiscal quarter ending on or immediately prior to
such date, determined on a pro forma basis as if any acquisition or
disposition of stock or assets had occurred at the beginning of
such quarter, to (ii) Consolidated Interest Expense for the most
recent full fiscal quarter ending on or immediately prior to such
date, determined on a pro forma basis in the case of each of
clauses (i) and (ii) as if any obligations of the Company or its
subsidiaries incurred or repaid during such quarter had been
incurred or repaid at the beginning of such quarter, to the extent
any such obligation gives rise to Consolidated Interest Expense.
"Quoted Prices" of the Common Stock means the last sale
price regular way or, in case no such sale takes place on such day,
the average of the closing bid and asked prices regular way, in
either case on the national securities exchange on which the Common
Stock is listed or admitted to trading, or if the Common Stock is
not listed or admitted to trading on any national securities
exchange, the last sale price regular way or, in case no such sale
takes place on such day, the average of the highest reported bid
and lowest reported asked prices as furnished by the National
Association of Securities Dealers, Inc. through Nasdaq or a similar
organization if Nasdaq is no longer reporting such information, or
if on any such Trading Day the Common Stock is not quoted by any
such organization, the average of the highest reported bid and
lowest reported asked prices as available in any other over-the-
counter market, or if on such Trading Day the Common Stock is not
reported in
<PAGE>
-32-
any such market, the fair value of a share of Common Stock on such
day, as determined in good faith by, and evidenced by a resolution
of, the Board of Directors.
"Restricted Payment" means (i) any dividend or other
distribution declared or paid on any Capital Stock of the Company
(other than dividends or distributions payable solely in Capital
Stock of the Company); (ii) any payment to purchase, redeem or
otherwise acquire or retire for value any Capital Stock of the
Company, (iii) any principal payment on, purchase, defeasance,
redemption or other prepayment of any Indebtedness of the Company
that is subordinate or junior in right of payment to the Notes,
other than any such subordinate or junior Indebtedness which is
issued by the Company as part of the purchase consideration paid to
the seller of any stock, assets or property to the Company or any
of its subsidiaries.
"SEC" means the Securities and Exchange Commission.
"Subsidiary" means a corporation, a majority of the
voting stock of which is owned, directly or indirectly, by the
Company or by one or more Subsidiaries, or by the Company and one
or more other Subsidiaries.
"Trading Day" means each Monday, Tuesday, Wednesday,
Thursday and Friday other than any day on which securities are not
traded on the principal exchange or market on which the securities
in question are traded.
Other terms shall have the meanings ascribed thereto
herein.
Every effort has been made to include definitions herein for each
capitalized term used in this Security; however, to the extent any
capitalized term is not specifically defined herein, the parties
expressly intend and do hereby agree that if there is a
corresponding term contained in the 1996 Indenture, such definition
shall apply as if it were contained herein.
12. MISCELLANEOUS.
12.1 NOTICES. Any notice or communication to the Company shall
be duly given if in writing and delivered in Person or mailed by
first class mail or nationally recognized overnight courier
addressed as follows:
If to the Company: SA Telecommunications, Inc.
1600 Promenade Center, 15th Floor
Richardson, Texas 75080
Attention: Vice President and
General Counsel,
with a copy to: the Chief Financial Officer
Any notice or communication to a Securityholder shall be
mailed by first-class mail to his address as shown on the register
kept by the Company. Failure to mail a notice or communication
<PAGE>
-33-
to a Securityholder or any defect in it shall not affect its
sufficiency with respect to other Securityholders.
If a notice or communication is mailed in the manner
provided above within the time prescribed, it is duly given,
whether or not the addressee receives it.
12.2 LEGAL HOLIDAYS. A "Legal Holiday" is a Saturday, Sunday
or a day on which banking institutions in Dallas, Texas are not
required to be open. If a payment date is a Legal Holiday at a
place of payment, payment may be made at such place on the next
succeeding day that is not a Legal Holiday, and no interest shall
accrue for the intervening period.
12.3 GOVERNING LAW. The laws of the State of New York shall
govern the Securities without regard to principles of conflicts of
law.
12.4 NO RECOURSE AGAINST OTHERS. A director, officer, employee
or stockholder, as such, of the Company shall not have any
liability for any obligations of the Company under the Securities
or for any claim based on, in respect of or by reason of such
obligations or their creation. Each Securityholder by accepting a
Security waives and releases all such liability.
12.5 SUCCESSORS. All agreements of the Company in the
Securities shall bind its successor.
12.6 SEVERABILITY. In case any provision in the Securities
shall be invalid, illegal or unenforceable, the validity, legality
and enforceability of the remaining provisions shall not in any way
be affected or impaired thereby, and a Holder shall have no claim
therefor against any party hereto.
12.7 NO ADVERSE INTERPRETATION OF OTHER AGREEMENTS. This
Security may not be used to interpret another debenture, loan or
debt agreement of the Company or a Subsidiary. Any such debenture,
indenture, loan or debt agreement may not be used to interpret this
Security.
12.8 ABBREVIATIONS. Customary abbreviations may be used in the
name of a Securityholder or an assignee, such as: TEN COM (=
tenants in common), TEN ENT (= tenants by the entireties), JT TEN
(= joint tenants with right of survivorship and not as tenants in
common), CUST (= Custodian), and U/G/M/A (= Uniform Gifts to Minors
Act).
12.9 RULES OF CONSTRUCTION. Unless the context otherwise
requires:
(1) A term has the meaning assigned to it;
(2) An accounting term not otherwise defined has the
meaning assigned to it in accordance with generally accepted
accounting principles;
(3) "Or" is not exclusive;
(4) Words in the singular include the plural, and words
in the plural include the singular; and
<PAGE>
-34-
(5) "herein," "hereof" and other words of similar import
refer to this Indenture as a whole and not to any particular
Article, Section or other subdivision.
(6) Provisions apply to successive events and
transactions.
12.10 CHOICE OF FORUM. The Company hereby irrevocably
consents to the non-exclusive personal jurisdiction, service of
process and venue in the federal and state courts of the State of
New York for any claim, suit or proceedings arising under this
Agreement or the documents and agreements executed in connection
herewith.
13. REGISTRATION RIGHTS.
Pursuant to the Registration Rights Agreement dated March 25,
1997, as amended by that Purchase Agreement dated August 13, 1997,
between the Company and Northstar High Total Return Fund, the
Company has agreed to provide the Holders of the Securities certain
limited piggy-back registration rights with respect to offers and
sales made by such Holders of the shares of Common Stock acquirable
upon conversion of the Securities.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
-35-
IN WITNESS WHEREOF, the Company has duly executed this
Debenture as of the date first written above.
SA TELECOMMUNICATIONS, INC.
By:
------------------------------
Name:
------------------------------
Title:
----------------------------
Exhibit A Assignment Form
Exhibit B Conversion Notice
Exhibit C Option of Holder to Elect Purchase
<PAGE>
Exhibit A
---------
ASSIGNMENT FORM
To assign this Security, fill in the form below:
I or we assign and transfer this Security to
- -----------------------------------------------------------------
- -----------------------------------------------------------------
(Print or type assignee's name, address and zip code)
and irrevocably appoint _________________________________________
agent to transfer this Security on the books of the Company. The
agent may substitute another to act for him.
Date: _______________ Your Signature:_____________________
Sign exactly as your
name appears on the
other side of this
Security)
Signature Guaranteed:____________________________________________
In connection with any transfer of this Security occurring
prior to August 13, 1999, the undersigned confirms that it has not
utilized any general solicitation or general advertising in
connection with the transfer and that this Security is being
transferred:
(Check One)
(1) [ ] To the Company or a subsidiary thereof; or
(2) [ ] Pursuant to and in compliance with Rule 144A under
the Securities Act; or
(3) [ ] To an institutional "accredited investor" (as
defined in Rule 501(a)(1), (2), (3) or (7) under
the Securities Act) that has furnished to the
Company a signed letter containing certain
representations and agreements (the form of which
letter can be obtained from the Company); or
(4) [ ] Outside the United States to a "Foreign Person" in
compliance with Rule 904 of Regulation S under the
Securities Act; or
(5) [ ] pursuant to the exemption from registration
provided by Rule 144 under the Securities Act; or
(6) [ ] pursuant to an effective registration statement
under the Securities Act; or
(7) [ ] pursuant to another available exemption from the
registration requirements of the Securities Act.
Unless one of the boxes is checked, the Company will refuse to
register any of the Securities evidenced by this certificate in the
name of any Person other than the registered Holder thereof;
<PAGE>
PROVIDED that if box (3), (4), (5) or (7) is checked, the Company
may require, prior to registering any such transfer of the
Securities, in its sole discretion, such legal opinions,
certifications (including an investment letter in the case of box
(3) or (4)) and other information as the Company has reasonably
requested to confirm that such transfer is being made pursuant to
an exemption from, or in a transaction not subject to, the
registration requirements of the Securities Act.
If none of the foregoing boxes is checked, the Registrar shall not
be obligated to register this Security in the name of any Person
other than the Holder hereof unless and until the conditions to any
such transfer of registration set forth herein have been satisfied.
Dated:_____________ Signed: _________________________________
(Sign exactly as name appears on the
other side of this Security)
Signature Guarantee:_____________________________________________
TO BE COMPLETED BY PURCHASER IF (2) ABOVE IS CHECKED
The undersigned represents and warrants that it is purchasing
this Debenture for its own account or an account with respect to
which it exercises sole investment discretion and that it and any
such account is a "qualified institutional buyer" within the
meaning of Rule 144A under the Securities Act and is aware that the
sale to it is being made in reliance on Rule 144A and acknowledges
that it has received such information regarding the Company as the
undersigned has requested pursuant to Rule 144A or has determined
not to request such information and that it is aware that the
transferor is relying upon the undersigned's foregoing
representations in order to claim the exemption from registration
provided by Rule 144A.
Dated:_______________ ___________________________________
NOTICE: To be executed by an
executive officer
<PAGE>
Exhibit B
CONVERSION NOTICE
The undersigned owner of this Security hereby irrevocably
exercises the option to convert this Security, or the portion
hereof (which is $1,000 or an integral multiple thereof) below
designated, into shares of Common Stock, and directs that the
shares issuable and deliverable upon conversion, together with any
check in payment for fractional shares and any Securities
representing any unconverted principal amount hereof, be issued and
delivered to the registered holder hereof unless a different name
has been indicated below. If shares are to be issued in the name of
a Person other than the undersigned, the undersigned will pay all
transfer taxes payable with respect thereto.
To convert this Security into Common Stock of the Company,
check the box:
[ ]
To convert only part of this Security, state the amount (must
be $1,000 or any whole multiple thereof):
$____________________
If you want the stock certificate made out in another Person's
name, fill in the form below:
_________________________________________________________________
_________________________________________________________________
(Insert other Person's social security or tax identification
number)
_________________________________________________________________
(Print or type other person's name, address and zip code)
Date:______________ Your signature:______________________________
(Sign exactly as your name
appears on the other side of
this Security)
Signature Guaranteed:____________________________________________
In connection with any transfer of the Common Stock occurring prior
to August 13, 1999, the undersigned confirms that it has not
utilized any general solicitation or general advertising in
connection with the transfer and that the Common Stock is being
transferred:
<PAGE>
(Check One)
---------
(1) [ ] to the Company or a subsidiary thereof; or
(2) [ ] pursuant to and in compliance with Rule 144A under
the Securities Act; or
(3) [ ] to an institutional "accredited investor" (as
defined in Rule 501(a)(1), (2), (3) or (7) under
the Securities Act) that has furnished to the
Company a signed letter containing certain
representations and agreements (the form of which
letter can be obtained from the Company); or
(4) [ ] outside the United States to a "Foreign Person" in
compliance with Rule 904 of Regulation S under the
Securities Act; or
(5) [ ] pursuant to the exemption from registration
provided by Rule 144 under the Securities Act; or
(6) [ ] pursuant to an effective registration statement
under the Securities Act; or
(7) [ ] pursuant to another available exemption from the
registration requirements of the Securities Act.
Unless one of the boxes is checked, the registrar for the Common
Stock will refuse to register the Common Stock in the name of any
Person other than the registered Holder thereof; PROVIDED that if
box (3), (4), (5) or (7) is checked, the Company or the Common
Stock transfer agent may require, prior to registering any such
transfer of the Common Stock, in its sole discretion, such legal
opinions, certifications (including an investment letter in the
case of box (3) or (4)) and other information as the registrar for
the Common Stock or the Company has reasonably requested to confirm
that such transfer is being made pursuant to an exemption from, or
in a transaction not subject to, the registration requirements of
the Securities Act.
If none of the foregoing boxes is checked, the Common Stock
transfer agent shall not be obligated to register Common Stock in
the name of any Person other than the Holder hereof unless and
until the conditions to any such transfer of registration set forth
herein shall have been satisfied.
Dated:_______________ Signed:_________________________________
(Sign exactly as name appears on the
other side of this Security)
Signature Guarantee:_____________________________________________
TO BE COMPLETED BY PURCHASER IF (2) ABOVE IS CHECKED
The undersigned represents and warrants that it is purchasing
Common Stock issuable upon conversion of this Security for its own
account or an account with respect to which it exercises sole
investment discretion and that it and any such account is a
"qualified institutional buyer" within the meaning of Rule 144A
under the Securities Act and is aware that the sale to it is
<PAGE>
being made in reliance on Rule 144A and acknowledges that it has
received such information regarding the Company as the undersigned
has requested pursuant to Rule 144A or has determined not to
request such information and that it is aware that the transferor
is relying upon the undersigned's foregoing representations in
order to claim the exemption from registration provided by Rule
144A.
Dated:____________ ______________________________________
NOTICE: To be executed by an executive
officer
<PAGE>
Exhibit C
---------
OPTION OF HOLDER TO ELECT PURCHASE
If you want to elect to have this Security purchased by the
Company pursuant to the provisions hereof, check the box: [ ]
If you want to elect to have only part of this Security
purchased by the Company pursuant to the provisions hereof, state
the amount: $______________
Date:______________ Your signature:______________________________
(Sign exactly as your name
appears on the other side of
this Security)
Signature Guaranteed:____________________________________________
<PAGE>
EXHIBIT D TO PURCHASE AGREEMENT
JUNE 30 FINANCIAL STATEMENTS
<PAGE>
EXHIBIT E TO PURCHASE AGREEMENT
ACCREDITED INVESTOR LETTER
August 13, 1997
SA Telecommunications, Inc.
1600 Promenade Center, 15th Floor
Richardson, Texas 75080
Ladies and Gentlemen:
In connection with our proposed purchase of $5,000,000
principal amount of 10% Convertible Debenture Due 2006 (the
"Debenture") of SA Telecommunications, Inc., a Delaware corporation
(the "Company"), we confirm that:
1. We have received a copy of those documents constituting
the Offering Memorandum (the "Offering Memorandum"), dated August
13, 1997 relating to the Debenture and such other information as we
deem necessary in order to make our investment decision. We
acknowledge that we have read and agreed to the matters stated in
the section entitled "Transfer Restrictions" of such Offering
Memorandum.
2. We are purchasing the Debenture for investment, without
any view to the sale or further distribution of any part thereof.
3. We recognize that the Debenture is a highly speculative
investment and that the risk of loss of all or a portion of the
investment therein is high.
4. We understand that any subsequent transfer of Debenture
or the shares of common stock, par value $.0001 per share, into
which the Debenture is convertible (the "Shares") is subject to
certain restrictions and conditions set forth in the Debenture (as
described in the Offering Memorandum) and the undersigned agrees to
be bound by, and not to resell, pledge or otherwise transfer the
Debenture or the Shares except in compliance with the Securities
Act of 1933, as amended (the "Securities Act"), and all applicable
state securities laws.
5. We understand that the offer and sale of the Debenture
has not been registered under the Securities Act or pursuant to any
state securities laws, and that the Debenture or Shares may not be
offered or sold within the United States or to, or for the account
or benefit of, U.S. persons except as permitted in the following
sentence. We agree, on our own behalf and on behalf of any accounts
for which we are acting as hereinafter stated, that if we should
sell any Debenture or Shares, we will do so only (i) to the Company
or any subsidiary thereof, (ii) inside the United States to an
institutional "accredited investor" (as defined in Rule 501(a)(1),
(2), (3) or (7) of the Securities Act) that, prior to such
transfer, furnishes (or has furnished on its behalf by a U.S.
broker-dealer) to the Company, a signed letter containing certain
representations and agreements relating to the restrictions on
transfer of the Debenture or the Shares, as the case may be (the
form of which letter can be obtained from the Company),
(iii) outside the United States in accordance with Rule 904 of
Regulation S promulgated under the Securities Act (if available),
<PAGE>
(iv) pursuant to the exemption from registration provided by
Rule 144 promulgated under the Securities Act or (v) pursuant to an
effective registration statement under the Securities Act, and we
further agree to provide to any person purchasing any of the
Debenture or the Shares from us a notice advising such purchaser
that any resale of the Debenture or the Shares is restricted as
stated herein.
6. We understand that, on any proposed resale of any
Debenture or the Shares, we will be required to furnish to the
Company such certification, written legal opinions and other
information as the Company may reasonably require to confirm that
the proposed sale complies with the foregoing restrictions and
applicable law. We further understand that the Debenture purchased
by us will bear a legend to the foregoing effect.
7. We are an institutional "accredited investor" (as defined
in Rule 501(a)(1), (2), (3) or (7) of Regulation D promulgated
under the Securities Act) and have such knowledge and experience in
financial and business matters as to be capable of evaluating the
merits and risks of our investment in the Debenture, and we and any
accounts for which we are acting are each able to bear the economic
risks of our or their investment, as the case may be.
8. We are acquiring the Debenture purchased by us for our
account or for one or more accounts (each of which is an
institutional "accredited investor") as to each of which we
exercise sole investment discretion.
You and your counsel are entitled to rely upon this letter and
are irrevocably authorized to produce this letter or a copy hereof
to any interested party in any administrative or legal proceeding
or official inquiry with respect to the matters covered hereby.
Very truly yours,
NORTHSTAR HIGH TOTAL RETURN FUND
By:_____________________________
Jeffrey Aurigemma
Vice President
CONSULTING AGREEMENT
Consulting Agreement ("Agreement") dated as of August 13,
1997 effective as of July 18, 1997 (the "Effective Date"),
between SA Telecommunications, Inc., a Delaware corporation with
offices at 1600 Promenade Center, 15th Floor, Richardson, Texas
(the "Company"), and Howard F. Curd, residing at 18 Elm Sea Lane,
Manhasset, New York 11030 (the "Consultant").
RECITALS:
A. The Company desires to engage the services of
Consultant as Chairman of the Board of Directors of the Company.
B. Consultant has agreed to serve as Chairman of the Board
of Directors the Company pursuant to the terms and conditions of
this Agreement.
NOW, THEREFORE, in consideration of the foregoing premises
and other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the Company and
Consultant hereby agree as follows:
1. TERM AND RENEWAL.
The Company agrees to engage the services of Consultant, and
Consultant agrees to serve, as Chairman of the Board of Directors
of the Company on the terms and conditions of this Agreement for
a period commencing on the Effective Date and ending on the
earliest to occur of (a) July 17, 1998, (b) the day immediately
following the occurrence of a Significant Change, or (c) such
shorter period as may be provided for in Section 9 hereof (the
"Consulting Period"). Notwithstanding the foregoing, on each
July 17th (the "Renewal Date") while this Agreement is in effect,
the term of this Agreement shall be automatically extended one
(1) additional year from the Renewal Date unless and until
terminated by the Company or Consultant, upon notice to the other
party on or prior to April 15th immediately preceding the Renewal
Date, in which case there shall be no automatic extension and
this Agreement shall end on July 17th of the year following the
year in which the termination notice is given.
2. DUTIES AND SERVICES.
During the Consulting Period, Consultant shall serve as the
Chairman of the Board of Directors of the Company. In
performance of his duties, Consultant shall perform the following
duties and such other duties as may from time to time be
prescribed by resolution of the Board of Directors in accordance
with the Company's bylaws, and shall be subject to the direction
of the Board of Directors of the Company: (a) improve the
Company's short term cash flow; (b) develop and implement a long-
term financial structure for the Company; and (c) develop and
implement a long term strategic business plan for maximization of
the value of the Company.
-1-
<PAGE>
Consultant agrees to his engagement as described in this Section
2 and agrees to devote such of his business time and efforts as
are necessary to the performance of his duties under this
Agreement. Consultant shall be available to travel as the needs
of the business require. The duties of Consultant may be changed
from time to time by the Board of Directors and the engagement of
the Consultant shall be construed as continuing under this
Agreement as modified, provided that no such change will result
in a change of Consultant's title or to any compensation payable
to Consultant, except as contemplated by Section 3 hereof.
3. COMPENSATION.
As compensation for his services hereunder, the Company
shall pay Consultant, during the Consulting Period, base
compensation payable on the first day of each month of $10,000;
provided, however, that during the first two months of the
Consulting Period in 1997, Consultant's monthly compensation
shall be $15,000 per month and Consultant shall receive no
compensation in the third month of the Consulting Period 1997.
Consultant will not be eligible to participate in the regular
employee benefit programs now or hereafter established by the
Company. Consultant waives any compensation to which he may be
entitled for prior services performed as a member of the
Executive Oversight Committee of the Board of Directors
4. BONUS.
(a) Upon the occurrence of a Significant Change (as
defined below), Consultant shall be entitled to a bonus in
an amount equal to $240,000 (the "Significant Change
Bonus"). For purposes of this subsection, "Significant
Change" shall be deemed to occur: (a) upon the consummation
of any consolidation or merger of the Company in which the
Common Stock of the Company would be converted into cash,
securities or other property; (b) upon the consummation of
any sale, lease, exchange or other transfer (in one
transaction or a series of related transactions) of all, or
substantially all, of the assets of the Company; or (c) in
the event that the Company shall file a voluntary or
involuntary petition in bankruptcy or file a petition or
answer seeking reorganization under any bankruptcy or
insolvency laws ("Bankruptcy Proceeding"), upon approval by
the creditors of a Chapter 11 reorganization plan for the
Company to emerge from Bankruptcy Proceedings as a viable
operating entity with at least $1,000,000 of new working
capital after payment of such Significant Change Bonus.
-2-
<PAGE>
(b) Upon the consummation of a transaction that
results in a significant capital infusion in the Company
which also results in a Change in Management Control (as
defined below) on terms approved by the Company's Board of
Directors, Consultant shall be entitled to a bonus in an
amount equal to $120,000. For purposes of this Section 4, a
"Change of Management Control of the Company" shall mean
either (a) a change in the Board of Directors of the Company
in which the individuals who constituted the Board of
Directors of the Company as of the date of this Agreement
(other than Paul R. Miller) together with any other director
whose election by the Board of Directors of the Company or
whose nomination for election by the shareholders of the
Company was approved by a vote of at least a majority of the
directors then in office who were directors at the date of
this Agreement) cease to constitute a majority of the
directors then in office; or (b) change resulting in the
Company's Fully Diluted Shares ceasing to represent more
than 50% of the total voting power of all outstanding Voting
Shares of the Company. "Voting Shares" shall mean all
shares of any class or classes (however designated) of
capital stock of the Company entitled to vote generally in
the election of members of the Board of Directors plus any
shares of capital stock which would be so entitled to vote
upon conversion or exercise of any debt or equity securities
of the Company (including without limitation notes,
debentures, warrants and options). "Fully Diluted Shares"
shall mean all Voting Shares on the date of this Agreement
plus any Voting Shares issuable upon conversion of the
Company's 10% Convertible Debenture Due 2006 to be issued in
August 1997.
5. BUSINESS EXPENSES.
The Company will, in accordance with its rules and
regulations, reimburse the Consultant for business expenses
incurred in the performance of his duties. Such reimbursement
shall occur within forty-five (45) days of submission by the
Consultant of such business expenses with corresponding receipts.
No reimbursement will be given by policy of the Board unless it
is in strict compliance with applicable provisions of the
Internal Revenue Code and the regulations promulgated thereunder.
-3-
<PAGE>
6. NONCOMPETITION.
Without prior approval of the Board of Directors of the
Company, Consultant agrees that (a) he will not during the
Consulting Period engage in, or otherwise directly or indirectly
be employed by, or act as a consultant or lender to, or be a
director, officer, employee, owner or partner of, any other
business or organization that directly or indirectly competes
with the business of the Company or any of its subsidiaries and
(b) for a period of three (3) years after he voluntarily
terminates this Agreement, Consultant shall not directly or
indirectly compete with or be engaged in the same business as the
Company or any of its subsidiaries or be employed by, or act as
consultant or lender to, or be a director, officer, employee,
owner, or partner of, any business or organization which, at the
time of such cessation, directly or indirectly competes with or
is engaged in the same business as the Company or any of its
subsidiaries; provided, however, that notwithstanding the
foregoing, the provisions of this Section 6 will not be deemed
breached merely because Consultant (i) owns not more than one (1)
percent of the outstanding equity securities of an entity, if, at
the time of its acquisition by Consultant, such securities are
listed on a national securities exchange, is reported on NASDAQ,
or is regularly traded in the over-the-counter market by a member
of a national securities exchange.
7. CONFIDENTIAL INFORMATION.
All confidential information which Consultant may now
possess, may obtain from the Company or its subsidiaries during
or after the Consulting Period, or may create prior to the end of
the Consulting Period or otherwise relating to the financial
condition, results of operations, business, properties, assets,
liabilities, or future prospects of the Company or of any
customer or supplier of any of them shall not be published,
disclosed, or made accessible by him to any other person or
entity either during or after the termination of his services
hereunder or used by him except during the Consulting Period in
the business and for the benefit of the Company and its
subsidiaries, in each case without approval of the Board of
Directors of the Company. The provisions of this Section 7 shall
survive the termination of this Agreement by either party.
8. BEST EFFORTS.
(a) Best Efforts. Consultant agrees that he will be at all
times faithfully, industriously, and to the best of his ability,
experience, and talents, perform all of the duties that may be
required of and from him pursuant to the express and implicit
terms hereof, to the reasonable satisfaction of Company. Such
duties shall be rendered at the home office of Company, and at
such other place or places as the Consultant and the Board of
Directors of the Company shall agree or as the interest, needs,
business or opportunities of the Company shall require.
-4-
<PAGE>
(b) Recommendations for Improving Operations. Consultant
shall make available to Company all information of which
Consultant shall have any knowledge and shall make all
suggestions and recommendations that will be of benefit to the
Company.
9. TERMINATION.
(a) Consultant's Death. If Consultant shall die during the
Consulting Period, this Agreement shall terminate, except that
Consultant's estate shall be entitled to receive the monthly base
compensation payable to Consultant pursuant to Section3 hereof,
earned to the last day of the month in which his death occurs.
(b) Consultant's Disability. If, during the Consulting
Period, Consultant shall become physically or mentally disabled,
whether totally or partially, so that he is prevented from
performing his usual duties and services hereunder for a period
of six (6) consecutive or nonconsecutive months during any twelve
(12) month period, this Agreement shall terminate effective on
such incapacity, and Consultant (or his legal representatives)
shall be entitled only to the base compensation earned to the
date of termination with no entitlement to any additional
compensation.
(c) Termination by the Company Without Cause. This
Agreement may be terminated by the Company without cause by
thirty (30) days prior written notice thereof given to
Consultant. In the event of termination without cause, the
Company shall pay Consultant the base compensation for a period
beginning effective at the time of termination to the July 17th
next following such effective time of termination.
(d) Termination by the Company for Cause. This Agreement
may be terminated by the Company "for cause" (as defined below)
by delivering to Consultant written notice describing the cause
and granting Consultant thirty (30) days to respond to the Board
of Directors. If this Agreement is terminated by the Company for
cause, Consultant shall only be entitled to the base compensation
earned by him to the date of termination with no entitlement to
any additional compensation. Termination of this Agreement by
the Company for cause shall be deemed to have occurred only if:
(i) termination shall have been the result of an act
or acts of dishonesty on the Consultant's part constituting
a felony or intended to result directly or indirectly in
substantial gain or personal enrichment to him at the
expense of the Company; or
(ii) termination shall have been the result of the
Consultant's willful and continued failure to perform his
duties and responsibilities as Chairman of the Board of
Directors of the Company (other than such failure resulting
from his incapacity due to physical or mental illness) after
a written demand for substantial performance is delivered to
the Consultant by the Board of Directors of the Company
which specifically identifies the manner in which such Board
believes that the Consultant has not substantially performed
his duties and the Consultant is given a reasonable time
after such demand substantially to perform his duties;
-5-
<PAGE>
Provided that Consultant's services shall in no event be
considered to have been terminated by the Company for cause
under (i) or (ii) above if the act or failure to act upon
which the termination is based is an act or failure to act
in respect of which the Consultant meets the applicable
standard of conduct prescribed for indemnification or
reimbursement of expenses under the By-laws of the Company
or the laws of the state of incorporation; or
(iii) at least 75% of the members of the Board of
Directors determine to terminate this Agreement.
(e) Voluntary Termination by Consultant. Consultant may
terminate this Agreement at any time upon delivering thirty (30)
days' prior written notice to the Company specifying the date of
termination. In the event of such voluntary termination,
Consultant shall be entitled to his base compensation earned to
the date specified for termination, but no base compensation
continuation payment or any bonus awards which have not been
vested on the date specified for termination. On or after the
date the Company receives notice of Consultant's termination, the
Company may, at its option, pay Consultant his base compensation
through the date of specified for termination and terminate his
services immediately.
(f) Termination by End of Term. This Agreement shall
terminate and Consultant's services hereunder shall terminate (i)
on July 17, 1998 if this Agreement not automatically renewed
pursuant to Section 1 hereof or (ii) if this Agreement is
automatically renewed in accordance with Section 1 hereof, on the
date of termination as so extended.
(g) Limitation of Payments. Any payments or grants
provided upon termination as set forth herein shall be in lieu of
any other obligations of the Company that may arise hereunder and
Consultant shall have no right to any subsequent payments or
bonuses hereunder.
-6-
<PAGE>
10. SURVIVAL.
The covenants, agreements, representations, and warranties
contained in or made pursuant to this Agreement shall survive the
termination of this Agreement.
11. MODIFICATION.
This Agreement sets forth the entire understanding of the
parties with respect to the subject matter hereof, supersedes all
existing agreement (whether written or oral) between the Company
and any of its previous or current subsidiaries on the one hand
and Consultant on the other concerning such subject matter, and
may be modified only by a written instrument duly executed by
each party.
12. ATTORNEYS' FEES AND COSTS.
If any action at law or in equity is necessary to enforce or
interpret the terms of this Agreement, the prevailing party shall
be entitled to reasonable attorneys' fees, costs and necessary
disbursements in addition to any other relief to which he may be
entitled.
13. NOTICES.
Any notice or other communication required or permitted to
be given hereunder shall be in writing and shall be mailed by
certified mail, return receipt requested, or by Federal Express,
Express Mail, or similar overnight delivery or courier service or
delivered (in person or by telecopy, telex, or similar
telecommunications equipment) against receipt to the party to
whom it is to be given at the address of such party set forth in
the preamble to this Agreement (or to such other address as the
party shall have furnished in writing in accordance with the
provisions of this Section 13). Any notice given to the Company
shall be addressed to the attention of the President with a copy
to the General Counsel. Notice to the estate of Consultant shall
be sufficient if addressed to Consultant as provided in this
Section 13. Any notice or other communication given by certified
mail shall be deemed given at the time of certification thereof,
except for a notice changing a party's address which shall be
deemed given at the time of receipt thereof. Any notice given by
other means permitted by this Section 13 shall be deemed given at
the time of receipt thereof.
14. WAIVER.
Any waiver by either party of a breach of any provision of
this Agreement shall not operate as or be construed to be a
waiver of any other breach of that provision or of any breach of
any other provision of this Agreement. The failure of a party to
insist upon strict adherence to any term of this Agreement on
one or more occasions shall not be considered a waiver or deprive
that party of the right thereafter to insist upon strict
adherence to that term or any other term of this Agreement. Any
waiver must be in writing.
15. BINDING EFFECT.
Consultant's rights and obligations under this Agreement
shall not be transferable by assignment or otherwise, such rights
shall not be subject to commutation, encumbrance, or the claims
of Consultant's creditors, and any attempt to do any of the
foregoing shall be void. The provisions of this Agreement shall
be binding upon and inure to the benefit of Consultant and his
heirs and personal representatives, shall be binding upon and
inure to the benefit of the Company and its successors and
assigns.
-7-
<PAGE>
16. HEADINGS.
The headings of this Agreement are solely for the
convenience of reference and shall be given no effect in the
construction or interpretation of this Agreement.
17. COUNTERPARTS; GOVERNING LAW.
This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original, but all
of which together shall constitute one and the same instrument.
It shall be governed by and construed in accordance with the laws
of the State of Texas, without giving effect to the conflict of
laws rules. Any action, suit, or proceeding arising out of,
based on, or in connection with this Agreement, any document or
instrument delivered pursuant to, in connection with, or
simultaneously with this Agreement, any breach of this Agreement
or any such document or instrument, or any transaction
contemplated hereby or thereby may be brought only in the
District Courts of Dallas County, Texas, or the United States
District Court for the Northern District of Texas, Dallas
Division and each party covenants and agrees not to assert, by
way of motion, as a defense, or otherwise, in any such action,
suit, proceeding, any claim that such party is not subject
personally to the jurisdiction of such court, that such party's
property is exempt or immune from attachment or execution, that
the action, suit or proceeding is brought in an inconvenient
forum, that the venue of the action, suit, or proceeding is
improper, or that this Agreement or the subject matter
18. RELATIONSHIP.
Consultant and the Company understand and agree that
Consultant is an independent contractor and there is no employer-
employee relationship, joint venture or partnership created
hereby.
-8-
<PAGE>
IN WITNESS WHEREOF, the parties have duly executed this
Agreement as of the date first above written.
COMPANY:
SA TELECOMMUNICATIONS, INC.
By: /s/ JOHN H. NUGENT
-------------------------
Title: President
CONSULTANT:
/s/ HOWARD F. CURD
------------------------------
Howard F. Curd
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRAXTED FROM THE
UNAUDITED FINANCIAL STATEMENTS OF SA TELECOMMUNICATIONS, INC AND SUBSIDIARIES
FOR THE SIX MONTHS ENDED JUNE 30, 1997, AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 8,307,917
<ALLOWANCES> 3,068,826
<INVENTORY> 136,875
<CURRENT-ASSETS> 6,472,107
<PP&E> 12,759,174
<DEPRECIATION> 2,133,275
<TOTAL-ASSETS> 45,738,593
<CURRENT-LIABILITIES> 15,333,585
<BONDS> 32,938,808
1,370,725
0
<COMMON> 1,687
<OTHER-SE> (3,906,212)
<TOTAL-LIABILITY-AND-EQUITY> 45,738,593
<SALES> 11,393,752
<TOTAL-REVENUES> 11,393,752
<CGS> 10,975,000
<TOTAL-COSTS> 18,121,319
<OTHER-EXPENSES> 813,238
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 920,528
<INCOME-PRETAX> (6,727,567)
<INCOME-TAX> 0
<INCOME-CONTINUING> (6,727,567)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (6,727,567)
<EPS-PRIMARY> (0.43)
<EPS-DILUTED> 0.00
</TABLE>
